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It was the best of times, it was the worst of times for Alphabet in 2021. Amid a multifront regulatory assault levied against the company, Alphabet today reported a solid fourth quarter that brought revenue for the full year to $257 billion. That number was 41% higher than what it reported for 2020. The company has not grown that fast since 2007, which tells you just how out of the ordinary last year’s expansion was.
It’s a good bet Alphabet increased its digital ad market share in the quarter. While we’re yet to hear from the other big ad-based internet companies, Meta Platforms and Snap in particular had flagged that their fourth quarter revenue could be constrained by Apple’s ad tracking changes as well as other macroeconomic factors. Most notably, supply chain constraints were expected to curb some merchants’ appetite for advertising during the holiday season. But Alphabet executives, in their commentary on a call with analysts, emphasized that their ad performance was broad-based and made no mention of supply chain issues or Apple. They talked up the strength of retail advertising.
The profit flowing from all that growth is giving Alphabet the resources to expand even more. The company added 6,472 employees to finish the year with a workforce of 156,500. That hiring expansion compared to the average new additions of 4,774 a quarter over the past four years (although on a percentage basis Alphabet’s hiring rate hasn’t changed much in that time). Alphabet Chief Financial Officer Ruth Porat also said the company expects a “meaningful increase in capex” in 2022, including on servers and on office construction.
The elephant in the room is the antitrust lawsuits both the federal government and groups of states are pursuing, not to mention bills before Congress that could curb the behavior and power of Google (and other tech companies). Those in Washington who believe Alphabet is too dominant will come away from today’s results more convinced than ever. That may be the downside of such a robust performance.
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Is hosting the Olympics worth it for China? | ||||
The Winter Games could end up being a raw deal for Beijing. | ||||
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Want to understand the world a little better? Subscribe to GZERO World with Ian Bremmer for free and get new posts delivered to your inbox every week. Like this newsletter? Share it with others you think would enjoy it, too. The Winter Olympics kicked off today in Beijing with a grand opening ceremony at the Bird’s Nest, the iconic stadium that also staged the 2008 Summer Games. Those Olympics were China’s coming-out party as a rising power that sought the embrace of the international community. Beijing is hoping to recreate its earlier success by putting on a “simple, safe, and splendid” Winter Games. The goal is not only to “enhance our confidence in realizing the rejuvenation of the Chinese nation,” President Xi Jinping said, “but also help present China as a positive, prosperous and open nation committed to building a community with a shared future for mankind.”
But much has changed since 2008. Back then, China was a newcomer on the global stage, a powerhouse-in-the-making but still a poor, export-oriented developing nation looking to join the big-boy table. Flash forward to 2022, and China is one of the world’s two superpowers, projected to overtake the United States as the largest economy by the end of the decade. These Olympics are supposed to showcase the country’s achievements under Xi’s leadership, but amid a still-raging global pandemic, logistical challenges, and international outcry over China’s human rights practices, you have to wonder whether hosting them this time around isn’t too risky a gambit for Beijing, with too little to gain in return. Will it pay off for China? Color me skeptical. Here’s why. Hosting costs a lot of moneyBeijing set its Winter Games budget at $3.9 billion, much lower than the $13 billion Korea paid for the 2018 Pyeongchang Olympics and the staggering $51 billion Russia spent on the 2014 Sochi Games. However, Olympic hosts always end up shelling out significantly more than they planned. Organizing committees boast a perfect track record of cost overruns since 1960, on average coming in 172% over budget. The 2008 Summer Games reportedly cost China an estimated $42 billion, more than six times the original budget. The bill for this year’s Winter Olympics will be particularly egregious because Beijing has no mountains and gets only minimal snow owing to its dry climate. Skiing events have to be held over 50 miles north of the capital—which required the construction of a high-speed rail line that’s not included in the official budget—and astounding amounts of artificial powder have to be continuously pumped at considerable expense and water usage. And since winter sports are not very popular in China, many of the sporting facilities Beijing has built will have limited use after the Olympics. Soon they will become “white elephants” that sit unused but need to be maintained, saddling taxpayers with debt and upkeep liabilities.
The economic benefits are dubiousCities like to promise their denizens that hosting the Olympics will eventually generate more than enough gravy to offset the costs. But study after study has shown that the endeavor is almost always a money-losing proposition. Not only are direct revenues from sponsorship, licensing, and TV rights only a fraction of the costs (and these accrue to the IOC, anyway), but the long-term economic benefits of hosting are also negligible in comparison. This will be especially so in the case of Beijing. First, taxpayer-funded construction didn’t increase employment or output because China was already in the midst of an investment and infrastructure boom. Instead of increasing the size of the pie, most of the spending diverted resources from productive sectors of the economy to the construction industry, which the government otherwise wants to move away from. Second, Covid restrictions (including a total ban on foreign fans) mean that China will see no short-run boost from tourism spending or local consumption. Finally, unlike more budding cities, Beijing is already a highly connected, well-developed metropolis, limiting the potential for increased trade, foreign investment, and tourism after the Games. It’s unlikely to yield soft-power dividendsOf course, money isn’t everything. Countries have historically sought to use the Games as a way to gain prestige internationally and project power. This has been a particularly important driver for emerging economies eager to demonstrate their rising might. But while the tactic worked for China in 2008, this time around it’ll fall flat. For one, China is already an economic, military, technological, and geopolitical heavyweight, and it’s not shy to flex its muscles. The world doesn’t need yet another reminder of its prowess. More importantly, China no longer behaves like an underdog. Beijing’s tightening grip on Hong Kong, militarization of the South China Sea, and human rights abuses from Xinjiang to Tibet have made it much harder to win foreign hearts and minds than in 2008, when China could plausibly claim to be a benign giant rather than a revisionist global power. In particular, China’s persecution and genocide of its Uyghur minorities invited a diplomatic boycott of the Winter Olympics by eight countries including the US, the UK, Canada, and Australia.
Unfavorable views of China are near all-time highs in much of the world. No matter how meticulously choreographed, the most politicized Olympics since 1980—when the US boycotted the Moscow Games—won't change that. Covid poses significant risksChina’s zero-Covid policy has come under stress in recent weeks since the country witnessed an uptick in infections. The small outbreaks led authorities to scrap plans to allow local spectators (foreign fans were already banned). But with teams from nearly 100 countries flying in for the event, an uncontrolled breakout can't be ruled out. This would not only disrupt the Games but could also threaten to unleash the highly-contagious Omicron variant on the Chinese population, which has almost no natural immunity to Covid and is shielded by largely ineffective homegrown vaccines.
To mitigate this risk, China has instituted a tightly-policed “closed-loop management system” (also known as a bubble) designed to physically segregate athletes, journalists, workers, and other Olympic stakeholders from the local population and to limit infections within the bubble. But despite strict restrictions on movement within the bubble itself, more than 230 cases associated with the Games have been recorded already. If the virus knocks out a significant number of participants and shuts down sporting events or—much worse—if the bubble breaks and the virus spreads to the local population, Xi’s credibility at home and abroad would be dealt a massive blow. Beijing has bigger fish to fryChina is facing numerous domestic challenges, that demand close to the leadership’s full attention. From finding new growth engines to extend the country’s economic gains and reducing income inequality to making China technologically self-sufficient and reversing its demographic decline, Xi Jinping should be less interested in pageantry—especially not in the run-up to the 20th Party Congress where he’ll be seeking a historic third term as president. That makes the opportunity cost (in terms of resources, focus, and political capital) of hosting the Olympics at this time very high. ----------- |
Alphabet Throws Down Gauntlet to Amazon on Stock Split
Alphabet shares will shortly become a lot more plentiful. The company announced a 20-for-1 stock split, which will increase the number of shares outstanding from 663.7 million to more than 13 billion. Alphabet’s stock price, which closed today at $2,757 (but which was trading around $3,000 in the after-hours market), should in theory drop to around $138 after the split.
That will make Alphabet shares more accessible to small investors, who sometimes balk at buying stocks that trade at such rarefied levels. And it throws down the gauntlet to Amazon, which hasn’t split its stock recently though its shares trade at a similar price level to Alphabet’s.
In contrast, Apple and Tesla both split their stocks in the summer of 2020. Tesla shares have doubled since its split, lifting the stock to near $1,000, raising the prospect that the automaker might split again.
Great Moments in PR
It’s always fun to see the euphemisms companies use to try to hide bad news. Take AT&T’s announcement today of the dividend it will pay once it gets rid of WarnerMedia this spring. AT&T announced that the annual dividend was expected to be $1.11 a share after the Warner deal closes. Oh, and that it would “size the annual dividend payout at approximately 40% of projected free cash flow” (emphasis is mine).
So the word “size” is now a synonym for “cut”? AT&T shareholders undoubtedly know they got $2.08 a share in dividends last year, so the new payout is nearly half what they were getting. And it’s not hard to discover that AT&T paid out 56% of its free cash flow last year in dividends.
Who exactly does AT&T think it’s fooling with this talk-around? Clearly not Wall Street. AT&T stock dropped 4% on the news.
In Other News…
- The Federal Trade Commission rather than the Department of Justice will handle the antitrust review of Microsoft’s $68.7 billion purchase of Activision Blizzard, Bloomberg reported late Monday.
- SoftBank’s Vision Fund pumped another $1.35 billion into General Motors’ Cruise self-driving car unit, TechCrunch reported.
- MariaDB, an eight-year-old Finland-based company that is building a business around its eponymous open-source database software, announced it is going public through a merger with SPAC Angel Pond Holdings Corp.
- Electronic Arts’ Andrew Wilson backed away from previous comments that NFTs were “the future of our industry.” On Tuesday, he said NFTs were not something the company was “driving in,” Protocol reported.
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