Cloud Stocks: Google’s Growth Continuing Despite Regulatory Concerns

I’m publishing this series to discuss a topic that I follow closely — cloud stocks, trends, strategy, acquisitions, and more. I like fundamentals-focused business building, and outline the principles of fundamentals-focused business building in my free Bootstrapping course.

Last month, Google (Nasdaq: GOOG) reported its first quarter results that continued to surpass market expectations. Google’s ad revenues for the quarter shattered all previous sales records for the first quarter as digital ad spending continued to increase. Regulators are trying to limit the power big tech has on global economies and population. But that appears to be doing little to stop Google’s growth.

Alphabet’s Financials

Alphabet’s first quarter net revenues grew 34% over the year to $55.31 billion, ahead of the market’s forecast of $51.7 billion. Net income rose 45% to $26.29 per share, surpassing the market’s forecast of $15.66 for the quarter.

By segment, revenues from Google Services that includes Search, advertising, Android, Chrome, hardware, Google Maps, Google Play, and YouTube grew from $38.2 billion a year ago to $51.2 billion. Google Cloud revenues grew 46% to $4.05 billion, in line with analyst predictions. Revenues from other bets fell to $198 million.

Google Services operating income grew from $11.5 billion last year to $19.5 billion. Google Cloud and its Other Bets are loss making divisions. Cloud ended the quarter with a loss of $974 million and Other Bets reported a loss of $1.15 billion.

Among other key metrics, overall search revenues grew from $24.5 billion to $31.9 billion. YouTube revenues grew from $4.04 billion to $6.005 billion.

Google did not provide an outlook for the current quarter. The market is looking for an EPS of $15.63 on revenues of $44.1 billion for the coming quarter and EPS of $69.57 on revenues of $187.94 billion for the current fiscal year.

Alphabet’s Product Enhancements

During the quarter, Google continued to improve its product offerings across its key businesses. Within YouTube, it added a new metric to its transparency reports called the Violative View Rate, which will help it estimate the percentage of views on YouTube that come from content that violates its policies. By investing in machine learning, it is working to reduce this rate. In Q4 2020, its Violative View Rate was between 16 and 18 views out of every 10,000 which has reduced by 70% from a few years ago.

Cloud is seeing strong performance across both Google Cloud Platform and Workspace. Within the cloud, there are three distinct market trends. First, there is strong momentum in the Data Cloud that is relying on its expertise in real-time data analytics. Its AI and ML capabilities are helping attract financial services customers such as HSBC, Commerce Bank, and others who are relying on these capabilities to improve efficiency of payments, reduce fraud and risk, and deliver faster payment solutions.

Second, customers want a robust infrastructure cloud to see operational efficiencies and reduce IT costs. Google’s hybrid cloud offering is helping it provide an easy, open development environment. Third, it is seeing demand for hybrid work with Google Workspace. Its digital tools for frontline workers like nurses and retail store workers, and new security offerings are helping it gain market share within these industries.

It is also utilizing insights from Search to help its business partners deliver better products and services to end customers. For instance, as vaccinations increase and pandemic conditions become manageable, people are starting to search for travel ideas. Travel partners are looking to understand end user demand through insights and automation to help these partners offer sales on prioritized locations and routes.

For retail customers, it made product listings free, removed commission fees, and opened its shopping platform to Shopify and PayPal to help businesses make the digital transition faster. It is helping both retailers and customers by providing searches for available near me and curbside pickup capabilities.

Meanwhile, Google continues to battle regulators on antitrust lawsuits. Last year, the Justice Department brought in antitrust lawsuits claiming that it had entered into agreements to favor its search-engine and advertising businesses and thwart competitors. Epic Games also filed a case recently against Google’s Play Store challenging its digital advertising policies. Earlier this year, Google had to agree to pay news media companies in Australia for content from news sites to abide by the rules levied by the Australian government. Additionally, concerns have been raised on Google’s privacy policy and it sharing its user data with third parties.

But despite all the cases, Google seems unfettered. It continues to invest in expanding its search capabilities and remains the default search engine on multiple devices, including the iPhone. Google boasts of a 92% share on global search traffic, 89% share on navigation through Maps, and 73% share on online video through YouTube. This is one giant that will be tough to break.

Google’s stock is trading at $2,300.30 with a market capitalization of $1.56 trillion. It hit a 52-week high of $2,452.38 last week and a 52-week low of $1,323.91 in June last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

Looking For Some Hands-On Advice?

For entrepreneurs who want to discuss their specific businesses with me, I’m very happy to assess your situation during my free online 1Mby1M Roundtables, held almost every week. You can also connect with me during our Rendezvous meetups, and check out my Bootstrapping Course, our YouTube channel, podcast interviews with VCs and Founders.

Photo by Greg Bulla on Unsplash