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Alphabet Counting on YouTube, Cloud, and the Smart Home

Posted on Wednesday, May 2nd 2018

Alphabet (Nasdaq: GOOG) recently announced its first quarter results. The revenues for the quarter outpaced market expectations, as the company continued to drive growth through its growth engines of YouTube, Cloud, and Smart Home.

Alphabet’s Financials

Alphabet’s adjusted first quarter revenues grew 26% over the year to $27.8 billion, significantly ahead of the Street’s forecast of $24.26 billion. Adjusted EPS of $9.93 was, however, lower than the market’s forecast of $11.74 for the quarter.

By segment, revenues from the Google segment grew 26% to $31 billion. Adjusting for traffic acquisition costs, revenues came in at $27.61 billion. Revenues from Other Bets grew 14% to $150 million.

Among operating metrics, aggregate paid clicks grew 59% over the year and 8% sequentially. Aggregate cost per click fell 19% over the year and declined 7% over the quarter. Impressions on Google properties were flat over the year, but reported a 5% increase over the quarter. Cost per impression on Google Network Members’ properties grew 18% over the year, but recorded 10% decline over the quarter.

Alphabet’s Growth Engines

During the quarter, Alphabet launched Google News Initiative to address the concerns regarding fake news. Alphabet already has a tie up with several players in the news industry. It is strengthening that relationship with an agreement to invest $300 million to elevate and strengthen quality journalism. Some of the new products launched as part of this initiative include Subscribe with Google that allows consumers to use Google account to buy a subscription on participating news sites. Since the launch of the service, Google has seen significant interest in the offering.

Alphabet is also leveraging its machine learning capabilities to improve products like Google Photos, Google Lens, and Google Assistant. For Google Assistant, it has tied up with more than 200 new device partners. All major manufacturers of connected devices for the home in the US can now connect with Google Assistant. Overall, Google Assistant can help with more than 1 million actions, ranging from routine grocery shopping to remitting money using mobile apps.

Within YouTube, during the last year, channels earning six figures annually grew more than 40%. It continued to invest in content and recently showcased the live streaming of Coachella, which recorded more than 41 million live views from all over the world. This was YouTube’s most viewed live music festival ever. Alphabet is mindful of the need for supervising content and it changed its monetization requirements to better identify creators who contribute positively to the community and drive more ad revenue to them. It uses user and machine flags to highlight and remove content that violates security policies. In Q4, it removed 6 million videos, and over 75% of those videos were removed before receiving a single view.

YouTube recently announced the launch of a new ad product that is targeted at people watching the service on television sets. YouTube realizes that while mobile devices still account for 60% of its total views, there are several viewers who use digital media players or video game consoles to cast YouTube onto their TV. YouTube’s new ad product will allow marketers to target this audience. Marketers will be able to target their ads to people who have similar viewing habits to traditional TV viewers as well as viewers who are watching on a TV screen specifically or audiences watching the YouTube TV subscription service.

Within the Cloud, Google is also launching several new offerings. Last quarter, it announced the release of Cloud AutoML, which simplifies the process of building complex neural nets for companies without machine learning expertise. It recently also launched in beta Cloud Composer, a managed Apache Airflow service. The service is designed for consistent workflow creation and management and will help engineers automate manual processes, and reduce the possibility of errors.

It is also attracting several big customers. It recently announced the addition of Fitbit to its client list. Fitbit will use Google Cloud Platform to share its users’ medical data with doctors. Analysts estimate that the Cloud will continue to drive growth for the company. They predict that by 2020, AWS will bring in $44 billion in cloud revenues, followed by Azure at $19 billion and Google Cloud Platform at $17 billion.

Google is also stepping up competition with Amazon within the Home space. Some of the newer products launched within the segment include the Nest Hello doorbell and Nest temperature sensor. It is also expanding its Home service in India and Singapore markets, where Amazon’s Alexa is already present. Amazon recently announced the billion dollar acquisition of Ring. According to a Loup Ventures report, Amazon is currently the market leader with 52% share compared with Google’s 32% share.  But the analyst estimates that the tables will turn by 2022 when Google Home will account for 48% of the Home market compared with Amazon’s 37% share.

Alphabet’s stock is currently trading at $1,017.33 with a market capitalization of $709 billion.  It touched a record high of $1,186.89 in March this year. It was at a year low of $862.81 in June last year.

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