about 2 years ago • 3 mins
Alphabet posted better-than-expected quarterly results late on Tuesday, and investors sent the Google-parent’s share price up 7%.
What does this mean?
There were worries coming into this update that higher costs would force companies to cut back on advertising across Google and YouTube last quarter. Still, Alphabet’s results quickly put those concerns to bed: ad revenue climbed by a better-than-expected 33% compared to the same time in 2020. The company did have at least one big expense of its own, mind you: its “traffic acquisition” cost – the cost of driving people to its sites and keeping them there – was higher than analysts were expecting. But Alphabet wasn’t going to let a little thing like that get in the way, and its total profit still came in at a better-than-expected $21 billion.
Why should I care?
For markets: Alphabet’s a grower, not a shower.
Here’s the thing: Alphabet’s price-to-earnings ratio – a key valuation metric – was sitting at nearly 22x just before the results, some way shy of Apple’s 28x. In other words, investors were paying 21% less for every dollar of Alphabet’s forecasted profit than they were for that of its rival. This, despite the fact that investment bank analysts are expecting Alphabet to grow its revenue faster than almost all its Big Tech competition this year. And that might be why they’re projecting its share price will climb 25% in the next 12 months.
The bigger picture: There’s life after advertising.
Alphabet isn’t just relying on ads: the company revealed last week that it’s hiring a team of blockchain experts in its cloud segment. The move will allow the company to offer developers – particularly those in the retail, healthcare, and financial services industries – the tools they need to start their own blockchain networks, build decentralized apps, and more. It might be right to get a move on: everyone from Amazon to Coinbase is already trying to establish themselves as major players in the space.
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Sony announced this week that it’s buying sci-fi game studio Bungie, as the entertainment giant tries to make a name for itself as the future of gaming.
What does this mean?
Sony has traditionally made a point of buying small games studios and building them out in its own image, but this slow-and-steady approach might not cut it any more – not after Microsoft announced last month that it’d be buying big-name developer Activision Blizzard. That acquisition will, after all, give its rival the power to make PlayStation-favorite Call of Duty an Xbox exclusive. So Sony has pulled the trigger on a major bid of its own, agreeing to buy US developer Bungie for $3.6 billion. That should provide the leverage it needs: the entertainment giant can now threaten Xbox users with going cold turkey on the must-have Destiny franchise.
Why should I care?
For markets: Spider-Man might save the day.
Investors sent Sony’s share price up 5% after the news, which partly makes up for the 13% drop it suffered when the Microsoft-Activision deal was announced. It’s still underperformed fellow Japanese gaming giant Nintendo by 19% this year, of course, but that’s arguably a bit short-sighted given that Sony has more strings to its bow. In fact, its image sensor segment is likely to have done big business last quarter after Apple’s bumper few months, and Spider-Man: No Way Home’s worldwide success should have bolstered its movie studio. Watch this space: Sony’s set to report last quarter’s results later this week.
The bigger picture: Start as you mean to go on.
There have now been three massive gaming acquisitions worth a total of around $84 billion in January alone. To put that into perspective, the whole of last year saw $85 billion in deals, which itself was almost three times higher than in 2020. So settle in for a record-blitzing year: analysts are expecting $150 billion in deals and fundraising in the sector.
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