As per Trefis estimation, Google Advertising Revenue, which consists of Google Properties segment and Google Network members’ properties segment, will contribute 83.3% of Alphabet‘s (NASDAQ:GOOG) Total Revenue for 2019. Google properties business, is part of the company’s advertising business and is expected to contribute $120 billion to Alphabet’s 2019 revenues, making up 70.2% of Alphabet’s $171 billion in expected revenues for 2019. The Google properties business contribution is about 6x that from Google Network members’ properties, the second segment of the company’s advertising business. Alphabet is expected to add $80.8 billion in revenue between 2016 to 2019, out of which the Google Properties segment is expected to provide $56.2 billion, that is 69.6% of the total expected increase. This revenue growth has been key to Alphabet’s 60% price appreciation since 2016, further helped by high margins, and a stable valuation multiple. We discuss Alphabet’s valuation analysis in full, separately.
Below we discuss Alphabet’s business model, followed by sections that review past performance and 2019 expectations for Alphabet’s revenue drivers, and competitive comparisons with Facebook and Amazon.
You can look at our interactive dashboard analysis ~ Alphabet’s Revenues: How Does Alphabet Make Money? ~ for more details.
Alphabet’s Business Model:
What does Alphabet offer:
- Alphabet is a collection of businesses – the largest of which is Google. It also includes businesses far away from the company’s main internet products in areas such as self-driving cars, life sciences, internet access, and TV services.
- Google has a chain of internet products designed for work, email, time management, cloud storage, instant messaging and conferencing, mapping and navigation, video sharing, payment interface, web browser, and various other services.
- The company reports all non-Google businesses collectively as Other Bets.
Has 3 major Operating Segments:
- Performance advertising: The purpose is to create and deliver relevant ads that users will click on, leading to direct engagement with advertisers. The revenue is generated when a user engages in the ads. Performance advertising lets the advertisers connect with users.
- Brand advertising: The purpose is to enhance users’ awareness of and affinity with advertisers’ products and services, using videos, text, images, and other interactive ads that run across various devices. The company helps brand advertisers deliver digital videos and other types of ads to specific audiences for their brand-building marketing campaigns.
- Other Bets: Alphabet’s Other Bets are emerging areas of business at various stages of development, ranging from those in the research and development phase to those that are in the beginning stages of commercialization. The area of business included in this segment are very different to the company’s main business.
What Are The Alternatives?
- General purpose search engines and information services, such as Baidu and Microsoft’s Bing,
- Vertical search engines and e-commerce websites, such as Amazon and eBay, Booking’s Kayak, and Microsoft’s LinkedIn.
- Social networks, such as Facebook, Snapchat, and Twitter.
- Online advertising platforms, including Amazon, AppNexus, Criteo, and Facebook and other forms of advertising.
- Digital video services, such as Amazon, Facebook, Hulu, and Netflix.
- Digital content and application platform providers, such as Apple.
- Enterprise cloud services, including Alibaba, Amazon, and Microsoft.
- Digital assistant providers, such as Amazon and Apple.
What Is The Basis of Competition?
- Competing successfully depends heavily on the ability to deliver and distribute innovative products and technologies to the marketplace across the businesses. Specifically, for the advertising-related businesses, competing successfully depends on attracting and retaining users, advertisers, and content providers. For how its revenue compares to its peers please visit our interactive dashboard – Alphabet’s Revenue.
Revenue growth expected in 2019 is primarily from growth in the Google Properties segment.
- Total Revenue has increased at a good growth rate over the years as it increased from $90.3 billion in 2016 to $136.8 billion in 2018. Trefis estimates further growth of about 25% and Revenue to reach $171 billion in 2019.
- Google properties segment has generated the highest revenue over the years among all segments and has generated incremental revenue of nearly $33 billion dollars from $63.8 billion in 2016 to $96.3 billion in 2018. Trefis estimates further growth of about 24.6% and Revenue to reach $120 billion in 2019.
- Google Network Members’ properties segment has grown from $15.6 billion in 2016 to $20 billion in 2018. Trefis estimates further growth of about 12.2% and Revenue to reach $22.4 billion in 2019.
- Other Revenue segment from Google has seen the highest growth rate over the years. Revenue grew from $10.6 billion to $19.9 billion in 2018. Trefis estimates further growth of about 40% and Revenue to reach $27.9 billion in 2019.
- Other Bets segment contains revenue from all the other business of Alphabet sans google. Revenue from the segment grew from $288 million in 2016 to $595 million in 2018. Trefis estimates further growth of about 24.7% and Revenue to reach $742 million in 2019.
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