The Six Five team dives into the recent earnings report from Alphabet.
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Daniel Newman: Let’s kick it off with Alphabet, Google earnings.
Patrick Moorhead: Is it Google? That’s always confusing. Anyways, let’s dive in. As industry analysts… well, I’ll speak for me because I know you take earnings to the next level. But as an industry analyst, it’s really this quarterly check-in to see if the company has done what they said they were going to do. For me, as opposed to looking at it… let’s say, necessarily as an investment device. But Google had a very good quarter, and kind of shocking when you look at how Amazon and Apple came in and kind of bit the dust… but, more in line with how Microsoft did and how AMD did. They did well. The thing that I focus on the most, and I’m definitely going to leave you some oxygen on this one, Daniel… is I really focused in on Google Cloud. It’s not that the rest of the business isn’t interesting, it is. But it just more aligns with the research that I think we did. Google Cloud is doing great, 44% increase in revenue, which I think is fantastic. They’re no longer this small entity that… you can say big percentage gains, small number.
They did nearly five billion dollars in Cloud revenue. Now, their Cloud revenue is cut across ISPs and SaaS. They have a very robust workspace, but they also have a very robust IS business down. In their last conference, they rolled out not just Cloud native companies, but they rolled out people like GE, who I can say with confidence is not a tech company or born in the Cloud. They also narrowed their Cloud loss by 50% year-on-year, previously they lost 1.2 billion and they lost around 600 million for the third quarter. If I kind of optic back, and you know I love to do this, and do some comparisons… is they are much bigger than Adobe now, which if you think about it is incredible. Now, they’re in different businesses and you can argue that Adobe is narrower in scope, but Adobe’s been around forever. It’s pretty sure that they’re on everybody’s desktop, even if it’s just for a PDF. Then, I’m curious, what’s the next step? Is the next step, they’re going to come after Salesforce in terms of size. Good quarter overall for Google and again, Google Cloud really doing well.
Daniel Newman: I attended Adobe MAX this week, and I think it really depends on what you’re looking at when you speak to Adobe because it’s business is different. It’s focused on analytics, it’s focused on creative, it’s focused on documents. It’s not really focused on IS at any level at all. It’s focused on, really, helping companies deliver these experiences on the web and then being able to analyze them and digitize them.
But yes, we’ll have to talk about them another time because this is not a segment on Adobe. But since you brought it up, I could not help myself and it was timely that was another event, by the way, that I spent time at this week. Good Lord, Pat… look, you hit the Google cloud thing on the head. The revenue is bigger. It is a smorgasbord of inputs that creates that five billion.
The IS number is growing, the losses are narrowing, and the company is looking that its investments could at some point pay off. The funny thing, though, is its Cloud business is such a small percentage of its overall business at this point. It’s not even 10% at this juncture and it’s not contributing profit, which is sort of an inverse of what you got going on at AWS, where it feeds the profit. In fact, I believe… and we’ll talk about Amazon later. Amazon only made a profit this quarter because of AWS. You got this kind of inverse thing that everyone’s looking at, why can’t Google make any money on the Cloud and what’s it going to take to get them there? But the beauty is when you’re creating $28 a share in income, you can take some risks. That’s what they’ve been doing with Cloud, it’s a long game for them. One of the things that is worth pointing out, and it’s a little bit off our typical… we’re not ad people.
We don’t do a lot of work in the ad space, but we do get asked quite regularly to opine to the media about the social environment. We use it very voraciously… is everyone thought that the Apple ID, if changes were going to just crush all the advertisers. For Google, it’s not really impacted them at all. I said that it’s because all of the people that use Google provide the data directly to Google. Apple, where they really were hammering users was when it was people using different applications that required those third party, those cookies, to be able to track and trace your activity across the internet. Well, Google gets people on its own platforms providing their own data, so it hasn’t affected then. In fact, their revenues are growing. Their advertising overall has been strong, slight increase in traffic acquisition. But like I said, their overall revenue has been very robust.
Good quarter for Alphabet… frankly, Pat, when they came out early in the week, along with Microsoft having done so well, I would’ve thought the rest of the week was going to go better than it actually did. But Alphabet’s on the right track. Google Cloud is one to watch, although I’m still not sure their IS business is bigger than Oracle’s.
Patrick Moorhead: No, I don’t think it is either. Daniel, it’s interesting, I was wondering when… Google having its own big platforms would kick in because the whole mobile boom and the other folks who got hit by the Apple advertising key. Google owns the browser with Chrome, and quite frankly, they own the smartphone with Android when you look at a global basis, even though there’s a lot more ad dollars in the United States.
Daniel Newman: Absolutely. Let’s move towards another company that out-sized the market, absolutely crushed it. This is just another quarter after another quarter of having tremendous results.
Daniel Newman is the Chief Analyst of Futurum Research and the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio