A Look At Alphabet’s Non-Search Businesses

by Trefis Team
Alphabet Inc.
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While Alphabet (NASDAQ:GOOG) has seen tremendous success with its search business, the company’s other consumer initiatives have gone largely under the radar. The rise of cloud computing, coupled with Google’s technological prowess and increasing focus on the Google cloud, could make it the company’s next major growth driver. Below we discuss the potential of Google’s non-search businesses going forward.

We currently have a price estimate of $1,143 per share for Google, which is around 10% higher than the current market price. Our interactive dashboard on Google’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Google has a virtual monopoly in the online search market, with over 90% market share across searches conducted through mobile and desktop. The company’s powerful search algorithm has helped Google become a dominant force across the online search value chain – from advertiser marketing budget allocation to SEO optimization focus. Google’s continued investment in enhancing its algorithms and the cumulative reinforcement throughout the search value chain has made the company the primary default search option, which has helped it deliver billions of dollars of cash flows despite solid competition.

Other Businesses Have Seen Mixed Success

However, beyond search, most of Google’s projects ranging from social networking (Orkut, Google Plus) to wearables have been far from spectacular. Undoubtedly Android has been one of company’s successes, but of late it has been mired in controversies around fair play and privacy, with the EU slapping a ~$3 billion fine on Google. The company has also had many other ambitious projects such as Pixel (the Google phone), Waymo (self- driving technology of vehicles) and others. While Pixel has been fairly popular and Waymo has generated a lot of hype, many of its ambitious projects have yet to see the light of day.

As a consumer tech play, Google was never seen as much of an enterprise business. However, despite hiccups, the Google Cloud is now ranked third (behind AWS and Azure). The recent hiring of an Oracle veteran to lead Google’s cloud program appears to further demonstrate the company’s seriousness about building out its own enterprise business as a major source of revenue. Additionally, Google’s partnership with Salesforce and increasing focus on multi-cloud developments could help the company reduce its reliance on the search business over the long run.

While Alphabet does not break out its cloud revenues in its filings, in April 2018 Citi estimated that Google’s cloud revenues could reach $17 billion by 2020. This compares with expectations of AWS and Azure at $44 billion and $19 billion, respectively.

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