In 2021, the U.S. stock market continued to flourish, and neither supply chain problems nor the pandemic could have prevented it. The Dow Jones, S&P 500, and NASDAQ indices finished last year at new all-time highs. The main catalyst for growth was investor optimism about the outlook for the global economy.
Whatever 2021 is, 2022 will be different. And the positives can quickly be replaced by negatives. In the new year, tensions will persist not only because of the pandemic but also because of the Fed’s plans to begin tightening its monetary policy. These two phenomena could spoil the reporting of many companies.
For those in doubt about their investment choices, here are two companies that should thrive in any situation and will delight shareholders with their successes in the new year. Today we are talking about Alphabet and Amazon.
To understand what we can expect from Alphabet in the coming quarters, we suggest looking at what has happened to it over the past two years. Alphabet’s total revenue in 2020 showed a 13 percent increase, and that’s even though the pandemic undermined demand in the advertising marketplace in the first half of that year. The growth of the Google Cloud segment also helped the company show good results.
The recovery began in the second half of 2020 when the issuer’s operating margin rose to 23% from the 21% recorded in 2019. Diluted earnings per share reached 19%.
The positive trends continued in 2021 when the issuer’s revenue increased 45% year on year. It was because Google ads and the company’s cloud services grew simultaneously. For the first three quarters of 2021, the issuer’s operating margin rose to 36% and diluted earnings per share to 124%.
As for the end of 2021, analysts expect the company’s revenue and earnings to rise 39% and 85%, respectively. In 2022, revenue and profit are expected to grow by 17% and 4%, respectively.
As can be seen from the figures, the company is stable and shows stable growth in different economic conditions. We believe that during the global economic recovery its performance will also continue to grow.
What makes the company so stable and profitable? Its two lines of business, advertising and cloud services.
The first place is occupied by Alphabet’s advertising business. Thanks to online advertising, the company makes a lot of money, which helps it grow in all sorts of economic conditions. Moreover, Alphabet is under constant pressure from the regulator to issue antitrust fines, and it is being investigated for privacy problems. Sometimes there are demands for it to split up this big business.
Nevertheless, despite the negativity, it is unlikely that anyone will bite the hand that feeds, and no one will touch the company.
The second business of the issuer is related to cloud services. According to Canalys, Google controlled 8% of the global cloud infrastructure market in Q3 2021. The company ranks third in this business after Amazon and Microsoft.
Despite third place, Alphabet’s services are used by companies such as PayPal, Twitter, and Home Depot, which further attracts new customers. The growth of customers will lead to a decrease in prices for services and will make this service competitive. The losses incurred from this will be easily compensated by a more profitable advertising business.
The issuer’s cloud services revenue was up 45% year over year in Q3 2021, as Amazon’s services showed a 39% increase and Microsoft’s was up 50% in the last quarter.
Analysts believe the company will continue to make money from its services as the global economy successfully overcomes the effects of the coronavirus pandemic.
2020 has been a phenomenal year for Amazon in terms of results. Two years ago, the issuer’s shares were up more than 70%. The issuer’s 2021 results were more subdued, with its financials up less than 5% year-to-date, well below the SP500’s 27% growth rate over the same period. However, according to analysts, the dynamics of this company will improve in the new year 2022.
Over the past ten years, the company has grown to enormous proportions. Sales in 2020 exceeded $380 billion, a 37.6% increase over 2019. The coronavirus pandemic forced millions of people to use online delivery for fear of contracting the coronavirus, which was only to Amazon’s advantage.
The company successfully met its objectives and ensured timely delivery of all orders to customers with only minor glitches. And that experience and those developments that the issuer has acquired over the past two years will help it retain recently acquired customers even after the pandemic.
In the fiscal year 2021, which ended Sept. 30 for the company, Amazon received $55 billion. With such an impressive amount of capital, the company has invested in the infrastructure of the business, spending more than $85 billion over the past two years, buying real estate and equipment.
This investment will also help make Amazon even more convenient for customers. It will also reduce delivery times, add more items to the Prime service, and lower prices for several customers.
Attracting new customers and increasing the frequency of purchases helps Amazon grow in another lucrative business segment: advertising. In the last quarter, that division grew 49% to $8.1 billion, and over the past four quarters, the issuer has earned nearly $31 billion from advertising.
The company’s business is moving in the right direction, and its stock is way up, and we expect its growth to continue in the new year.