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Alphabet’s revenue increase by 18% in 2019, Google Cloud revenue stood at $9 billion

Courtesy: Google Press Corner

Google parent Alphabet Inc. posted revenues of $162 billion in 2019, up 18% from $137 billion in 2018. Google split Cloud and YouTube numbers for the first time. Google Cloud — which consists of Google Cloud Platform and G Suite — raked in $9 billion or 5.5% of Google’s revenues in 2019. In 2017, it made up 3.6% of Google’s revenue. Google Cloud growth was driven by significant growth in Google Cloud Platform (GCP). YouTube raked in $4.7 billion in ad revenue in Q4 2019, and a total of $15.1 billion in 2019. YouTube Music and YouTube Premium (ad-free YouTube) have 20 million subscribers, and YouTube TV has 2 million paid subscribers.

This is Alphabet’s first quarterly earnings release after Sundar Pichai took over as the Alphabet CEO from Google co-founders Larry Page and Sergey Brin in December 2019.

Alphabet’s revenues for Q4 2019 stood at $46 billion, up 17% YoY from $39 billion in Q4 2018. In addition to Google’s revenues, Alphabet revenues include “Other Bets” consisting of life sciences arm Verily, health longevity company Calico, and self-driving cars unit Waymo. While Google’s operating income increased by 20% YoY to $11.4 billion, losses from Alphabet’s “Other bets” increased 35% YoY to $2 billion.

The company’s traffic acquisition costs increased 15% year-on-year to $8.5 billion in Q4, and increased 17% YoY in 2019. The European Commission’s penalty imposed on Google earlier this year for breach of EU’s anti-trust rules knocked out $1.6 billion of the company’s operational income in 2019. Even then, this was a significantly smaller fine than the $5 billion anti-trust penalty imposed by the Commission in 2018.

Details on Cloud: Alphabet CEO Sundar Pichai said that GCP’s growth was meaningfully higher than that of Cloud overall and GCP’s growth rate accelerated over 2018. Cloud now has furniture e-commerce company Wayfair, retailer Lowe’s, Lufthansa Group, and the US Postal Service as customers, among others. Google Cloud has focused on six industry verticals in 21 markets and is on track to triple sales in 3 years, including bringing in new staff, Pichai added. Google Cloud works with “hospitals and healthcare providers to securely manage their patients’ data. Our AI teams at Google also work with partners to apply AI to help them and their patients whether it s developing better health systems or helping the diagnosis and deduction of disease,” Pichai said.

Developers around the world have earned $80 billion from Google Play. The digital marketplace launched in 2021, and has 2 billion monthly active users. Google’s “Other” revenues — consist of Google Play, hardware, YouTube premium, music and TV — grew by 10% YoY to $5.3 billion.

Maps, Assistant, and BERT:

  • Google’s neural network for natural language processing called “BERT” impacted 10% of searches in Q4, and has rolled out in 70 languages.
  • Google Maps served 630 million people in locations that weren’t well-mapped.
  • Google Assistant now helps over 500 million monthly users in 90 countries to get done, this is across smart speakers, smart displays, phones, TVs, cars, and more.

In 2020, Google will be focusing on Search, Maps, and Assistant; improving user’s privacy and security and keeping harmful content off their systems; execution at scale; increase usage of Google’s computing resources, and growing business opportunities in YouTube, Cloud, Play, hardware, etc.

Alphabet’s structure, dealing with possible risks from its other businesses

Talking about the management and focus of Alphabet, Pichai emphasised the adoption of AI, ambient computing, and stated that the move to Cloud shows the company’s investments across Google and Alphabet’s other companies. Verily and Calico are partnering with industry to use AI and cloud to improve clinical trials, research, and drug development, Pichai said.

Why the Alphabet structure works: “The Alphabet structure allows us to have a portfolio of different businesses with different time horizons without trying to stretch a single management team across different areas,” Pichai added.

Risks in ‘Other Bets’: An investor asked Pichai about the risk profile that some of the company’s “Other Bets” may present: what if an autonomous cars has an accident? Would it damage Google more than if Waymo was a separate enterprise, and not under Alphabet? Pichai said that the company is ensuring investments in the proper governance structures “so that we don’t try to scale as a management across these important areas. Some of these are – have regulatory aspects to it”. He added that:

“For some of these bets as well, and Verily is a great example, we have brought in outside investors, people with expertise and setting up proper board structures and governance for these.

“So, I think those all help and we’ll continue to evaluate these on a periodic basis and bring that rigor and discipline, but I do think Alphabet gives us a more flexible framework, if you will, to both have the independence when we need, but where we can have common shared synergies, like our AI investments, bring that to bear as well.” — Sundar Pichai

Download: Financials | Earnings Call Transcript

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