Google's search for non-ad revenue puts
spotlight on cloud, Pixel
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[April 28, 2017]
By Supantha Mukherjee and Julia Love
(Reuters) - Alphabet Inc's non-advertising
business, which houses its cloud unit, Pixel smartphones and the Play
store, has long been sandwiched between Google's advertising juggernaut
and its moonshot ventures that have captured popular imagination.
Not any more.
The business, categorized as "Other Revenue" in its earnings report,
posted a 49.4 percent jump in revenue to $3.10 billion on Thursday - a
sum already bigger than Twitter Inc's annual revenue.
The business now represents about 13 percent of Alphabet's total
revenue, compared with 10 percent a year earlier.
That may not be a big jump but definitely shines a light on Google's
efforts to cut down its dependence on revenue from advertising, where it
competes with Facebook Inc.
"(Google) is doing a good job, a much better job in diversifying revenue
than Facebook is," said analyst James Wang of ARK Investment Management.
"We think that is quite an impressive achievement."
Alphabet does not break out revenue contribution within the "Other
Revenue" segment. But analysts have said that cloud is the most
prominent among the category's clutch of businesses.
To be sure, Google's cloud venture is still much smaller than market
leader Amazon.com Inc's Amazon Web Services and Microsoft Corp's Azure.
But Google is investing heavily.
"In Q1, our largest growth in headcount and capital expenditure was in
cloud," Google Chief Executive Sundar Pichai said on a call with
analysts on Thursday.
Amazon's cloud business grew 43 percent to $3.66 billion in the first
quarter. Microsoft's cloud unit grew 93 percent.
"We believe Google will continue to gain traction in the cloud market,
and when combined with Google Play and sales of Google's hardware
products, we see Google's 'other' revenue growing 38 percent to nearly
$14 billion in 2017," Morningstar analyst Ali Mogharabi wrote in a
The company's hardware business also started gaining traction after
Google released a pair of high-profile hardware products last year - the
Pixel phone and the Google Home, a smart speaker like Amazon's Echo.
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A Google search page is seen through a magnifying glass in this
photo illustration taken in Berlin on August 11, 2015. REUTERS/Pawel
"People are hankering for a really awesome Android phone that
basically gives them the iPhone experience," Wang said, adding that
the growth in Google's "other revenue" bucket this quarter "shows
sustained momentum for the Pixel."
Still, the lion's share of Alphabet's revenue comes from ads and
that's not going to change any time soon.
Total advertising revenue increased 18.8 percent to $21.1 billion in
the first quarter, the company reported on Thursday.
Profit also rose 29 percent to $5.43 billion, beating Wall Street
At least 10 brokerages raised their price targets on the stock after
the earnings report.
Alphabet's drive for diversification also includes its "Other Bets"
business, considered the company's loss-making arm.
The business, home to the Waymo self-driving car, Google Fiber and
thermostat-maker Nest, posted a first-quarter loss of $855 million.
Google's shares were up 4 percent in premarket trading on Friday.
They have gained 12.5 percent this year.
(Reporting by Supantha Mukherjee in Bengaluru and Julia Love in San
Francisco; Additional reporting by Geetha Panchaksharam; Editing by
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