Revenue From Google Cloud, Hardware, Play Units Jump in Q4

Google reported a 22 percent increase in year over year revenue in its fiscal fourth quarter and a more modest 8.3 percent hike in net income from the $4.9 billion the company reported in the same quarter a year ago.

Google Earnings Jump

Google parent Alphabet's fourth quarter earnings report suggests that Google's attempts to broaden its revenue streams over the past several years may finally be beginning to gain some traction.

Alphabet Thursday reported net income of $5.3 billion and earnings per share of $9.36 on revenues of $26.1 billion for the quarter ended Dec. 31. The numbers represented a 22 percent increase in revenue year over year and a more modest 8.3 percent hike in income from the $4.9 billion reported in the same quarter a year ago.

The earnings per share was about 30 cents less that Wall Street's expectations for the quarter, and briefly pushed Google's share prices down by nearly two percent in early trading Friday.

In a repeat of the previous quarter, mobile ads and advertisements on YouTube led Google's revenue growth this time around as well. "Advertising revenue growth was driven by mobile search with ongoing strength in YouTube and programmatic [ads]," Alphabet CFO Ruth Porat said in the earnings call Thursday.

"We also had substantial growth in other revenues from hardware, Play and cloud," she said.

In fact, about 13 percent—or $3.4 billion—of the Google segment's $25.8 billion in revenues for the quarter, came from non-advertising sources. That is more revenues than Google's non-advertising businesses have ever generated in a single quarter and represented a 62 percent jump over the same quarter one year ago.

"The fact that "other revenues" represent 13 percent of the total revenue is encouraging since it mixes revenues as diverse as hardware sales, Google Play store revenues and corporate cloud services," said Thomas Husson, principal analyst at Forrester Research.

But what's not clear is just how much each of these segments contributed to that revenue growth. For instance, it's unclear whether hardware sales were a major factor considering that Google's new Pixel smartphones and Google Home only just started shipping, he said.

Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, said the lack of details surrounding sales of Pixel and Google Home in the latest earnings report is disappointing. "If they were performing well, numbers would have been disclosed," he said.

Besides the surge in revenues from Google's other business, the quarter held few surprises, Husson said.

"Alphabet's reorg and Google's core advertising business have offered good predictability and stability in the revenues," he said.

As expected, aggregate costs-per-clicks on mobile, or what Google earns from each click on an ad in mobile search, declined in the last quarter. The general expectation is that Google will make this up in higher volumes. Even so, the decrease was higher than the consensus average, Husson said.

"I'd argue that the stability of Google's revenue in the next two to three years would depend on their ability to maintain the growth of mobile revenues," he said. "While there might be slower growth, the mid term prospect looks good given the fact that advertisers will wake up to the mobile Web opportunity after having focused too much on mobile apps."

Meanwhile, Alphabet’s "other bets", which include former Google moonshot ventures like Verily, Calico, X, Google Fiber and Nest Labs continued to swim in red, but not as much as previously. In the past quarter Alphabet's ‘other bets’ generated $262 million in revenue, up 75 percent from the same quarter a year ago. The operating loss from these businesses at $1.1 billion was about 10 percent less than the previous year.

Jaikumar Vijayan

Jaikumar Vijayan

Vijayan is an award-winning independent journalist and tech content creation specialist covering data security and privacy, business intelligence, big data and data analytics.