Saturday, 22 February 2020

Alphabet Revenues and Product Mix 2020

Google Search and products like Google Maps, Google Play and You Tube have become an integral part of our lives. Not a day passes by without using Google Search or Maps or You Tube and perhaps no other product or service has captured popular imagination as much as Google has in the last couple of decades. No wonder that Google attracts so much of regulatory attention. This article provides a description of Google's revenue mix and metrics. (of course,with some help from Google search!! and MS Excel not Google Sheets!)

In August 2015, Google has re-organized itself into a holding company called Alphabet with two subsidiaries – 1) Google includes main products such as ads, Android, Chrome, hardware, Google Cloud, Google Maps, Google Play, Search, and YouTube, 2) Other Bets include Access, Calico, Capital G, GV, Verily, Waymo, and X, among others. (Annual Report 2019)

To put things in perspective, Google accounted for 31.1% of global digital ad spending or $ 103.73 billion at the beginning of 2019. Google, Facebook and Amazon together account for 70% of digital ad spending in the United States which accounts for 40% of the global digital ad expenditure. (emarketer.com)

ALPHABET REVENUE MIX

In 2019, Alphabet earned more than 83% of its revenues from Google advertising and given below is the break up of total revenues.


Google Advertising Revenues

Google advertising revenues can further be segregated as shown below for the year 2019.


1. Google Search & other consists of revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.) and other Google owned and operated properties like Gmail, Google Maps, and Google Play;
2. YouTube ads consists of revenues generated primarily on YouTube properties; and
3. Google Network Members' properties consist of revenues generated primarily on Google Network Members'properties participating in AdMob, AdSense, and Google Ad Manager.
(Annual Report 2019)

 Google Cloud

Google Cloud is the fastest growing segment of Alphabet for the past three years and the proportion of cloud revenues out of total revenues has increased from 3.7% in 2016 to 5.5% in 2019.

Google Cloud revenues consist primarily of revenues from Cloud offerings, including

• Google Cloud Platform (GCP), which includes infrastructure, data and analytics, and other services
• G Suite productivity tools; and
• Other enterprise cloud services.
(Annual Report 2019)

Google other Revenues

Google other Revenues contributed 10.6% to total Alphabet revenues and primarily consist of:

• Google Play, which includes revenues from sales of apps and in-app purchases (which is recognized net of payout to developers) and digital content sold in the Google Play store;
• hardware, including Google Nest home products, Pixelbooks, Pixel phones and other devices;
• YouTube non-advertising, including YouTube Premium and YouTube TV subscriptions and other services; and
• other products and services.
(Annual Report 2019)

Other Bets Revenues

Other Bets revenues contributed 0.4% of total revenues and primarily consist of revenues from sales of Access internet and TV services and Verily licensing and R&D services.

SEGMENTWISE GROWTH RATES

As per Alphabet Annual Report 2019,


Our advertising revenue growth rate has been affected over time as a result of a number of factors, including challenges in maintaining our growth rate as revenues increase to higher levels; changes in our product mix; changes in advertising quality or formats and delivery; the evolution of the online advertising market; increasing competition; our investments in new business strategies; query growth rates; and shifts in the geographic mix of our revenues. We also expect that our revenue growth rate will continue to be affected by evolving user preferences, the acceptance by users of our products and services as they are delivered on diverse devices and modalities, our ability to create a seamless experience for both users and advertisers, and movements in foreign currency exchange rates.

In the past three years, Alphabet's total Revenues have grown at a CAGR of 13.45% and Advertising revenues grew at 12.15%. Google Cloud is the fastest growing segment of Alphabet with a three year CAGR of 30.03% followed by You Tube ads at a three year CAGR of 22.95%.
(You Tube Ads monetize at a lower rate than traditional search ads)

Also the margins that Alphabet earns on its non advertising revenues are much lower than those on advertising revenues.


Google faces increased competition from Amazon and Facebook for the digital ad pie.

GEOGRAPHICAL REVENUE BREAKUP

Google's advertising revenues from mature markets are stabilizing now (base effect) and revenues from emerging markets are growing at a higher rate due to increased digitization. 

As of 2019, 54% of Alphabet's revenues come from outside of the United States.


Alphabet invests heavily in research and development expenditures in areas such as artificial intelligence, quantum computing, life sciences etc.

Alphabet's founders Larry and Sergey wrote in the original founders' letter, "Google is not a conventional company.We do not intend to become one."

Up Next: DCF Valuation for Alphabet 


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