By his own admission, Sundar Pichai is not a morning person (Callum Jones writes). “I need my time with my paper and tea to wake up and get going,” the boss of Google and Alphabet told the Code Conference a few years ago.
As he rose on Tuesday, what he read is likely to have put a spring in his step. The front page of The Wall Street Journal, which one of Silicon Valley’s most powerful executives has made clear he reads in print, rather than online, each day, led with his company’s victory over Oracle, the computing software group.
After a battle spanning more than a decade, the Supreme Court threw out a lower court ruling in favour of Oracle, which had alleged that Google’s Android mobile operating system had infringed its copyrights. It had sought damages of up to $9 billion.
Monday’s ruling was the latest catalyst to boost shares in Alphabet, which resumed their rally to hit $2,218.96, a fresh all-time high. Shares in the $1.5 trillion operator behind the Google search engine and YouTube video platform increased by a fifth during the first quarter. They were fleetingly caught up in the wider technology rout, but this appears little more than a blip.
Pichai has hailed the “accelerating transition” online during the pandemic after a record-breaking year for his company. Alphabet’s total annual revenue rose by almost 13 per cent to $182.52 billion in 2020 and its operating income increased by 20 per cent to $41.22 billion.
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Google sees “significant opportunities” as more businesses worldwide “increasingly look to a digital future”, its chief executive told shareholders in February.
It is in a position to capitalise on the myriad shifts towards digital, from surging ecommerce sales to growing audiences logging into streaming platforms, that Covid-19 lockdowns and restrictions have intensified since last spring.
Alphabet makes more money from digital advertising than any other company, selling space alongside Google’s search results, spots within YouTube videos and elsewhere. The business, based in Mountain View, California, also boasts a rapidly growing cloud computing division, with revenues up 47 per cent in the final quarter of last year, not to mention interests in smartphones, self-driving cars and healthcare.
In the short term, the company faces questions around maintaining momentum. Annual revenue growth of 12.8 per cent last year amounted to its slowest pace in a decade. Analysts are likely to look beyond advertising sales and to focus on other areas of the Alphabet empire, from its cloud computing division to bets such as DeepMind, its artificial intelligence business, and Waymo, its self-driving autonomous vehicles unit, for hints of what lies ahead.
Yet the greatest pressures on Alphabet — and its Big Tech peers — are political, not financial. All eyes are on the Biden administration as Washington continues to attack executives over the dominance of their platforms and the misinformation that they can disseminate.
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Last month Pichai warned Congress that recent proposed changes to Section 230 of America’s Communications Decency Act, which protects online platforms from lawsuits by ensuring they are not treated as publishers, would have “unintended consequences”. In October, the US Department of Justice sued Google over what it called “anticompetitive and exclusionary practices in the search and search advertising markets”. The Trump administration made clear that nothing was off the table after filing its lawsuit, which Google described as “deeply flawed”. Now Biden’s officials must decide how to proceed.
Whether or not the car has a driver, the road could be bumpy.
Advice Avoid
Why Uncertainty over Biden administration’s plans for Big Tech amid forensic political scrutiny
Helical
For all the big corporates announcing that staff may never have to work in an office again, there are plenty unveiling plans for their employees to return (Louisa Clarence-Smith writes). Goldman Sachs, Wells Fargo and Google are among those that have been sceptical about full-time remote working. Amazon expects its employees to return to an “office-centric” culture by the autumn.
The property developers that will benefit will be those who build the best space in well-connected locations. Take Helical, for example, which has demonstrated its appeal to creative sectors that thrive on creating company culture and attracting talent with high-quality work areas focused on design, amenities and public realm.
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Last month it secured TikTok, the video-sharing app, as a tenant to lease a new office building in Farringdon, central London, on an annual rent of £7.6 million — a 5.4 per cent premium of its estimated rental value a year ago. The Chinese company has signed up to a fifteen-year lease with a ten-month break, in a rebuke to those who argue that new working habits adopted during the pandemic will spell the end of traditional long leases.
Helical owns a portfolio of nine developments in London, mostly offices, and one office property in Manchester. Its top-five office tenants are said to be up to date with their rent payments and the landlord collected 82.8 per cent of its rents due at the March quarter day, which management expects to increase to between 91 per cent and 95 per cent by the end of June. For 2020, it has collected 92.9 per cent of rent due.
Shares in Helical shares have been trading at wide discount since the Brexit referendum in 2016. At 412½p, they are 22 per cent lower than they were in the middle of February last year, before the UK first went into lockdown. In a post-pandemic London office market set to be defined by a race for quality space, Helical is nicely placed to increase its development pipeline, having sold three Manchester properties for £119 million in December and maintained a low loan-to-value ratio of 22 per cent. Based on its recent performance, the lowly rating of its shares doesn’t feel justified.
Advice Buy
Why Poised to be a winner in two-tier London office market
