Alphabet: Financial results reveal Google’s emergence as cloud giant

Alphabet: Financial results reveal Google’s emergence as cloud giant

Google’s parent Alphabet has reported Q2 financials revealing that revenues were up by 26 percent year on year, or 23 percent in constant currency.

The announcement was made just prior to Google’s three-day Cloud Next conference, which kicks off today in San Francisco, at which the company is expected to make a series of new cloud services and platform announcements. (Full details tomorrow.)

Excluding the EU’s recent antitrust fines relating to Google’s Android operating system, Alphabet’s Q2 net income rose to $8.266 billion from $6.26 billion in the same quarter last year. Inclusive of the fines, it dipped to $3.195 billion from $3.524 billion.

This year marks the tenth anniversary of the Android phone. In a conference call to Wall Street analysts, Google CEO and Alphabet board member Sundar Pichai claimed that there are now 24,000 different Android devices at “every price point from more than 1,300 different brands”.

Standout business segment performance within Alphabet included: Google properties, with revenues of $23.3 billion (up 26 percent); Google other revenues, including cloud services, of $4.425 billion (up 37 percent); and ‘other bets’ (Alphabet’s roster of experimental startups), with revenues of $145 million (up nearly 50 percent).

However, ‘other bets’ reported an operating loss of $732 million for the quarter.

Giant in the cloud

The results show a still-healthy, click-based core advertising business, but one in which the cloud is booming and outperforming other segments, while new businesses are raring to go – if weighing heavily on Alphabet’s balance sheet.

In short, a platform and services company is emerging from a search-based advertising behemoth, just as Amazon is a Web services giant disguised as a retailer. Microsoft makes up the triumvirate of cloud giants in the enterprise space – disguised as a company that let Google and Apple walk off with the mobile market.

Alphabet and Google CFO Ruth Porat said, “You can see that our performance was strong again in all regions. US revenues were $14.9 billion, up 21 percent year over year. EMEA revenues were $10.8 billion, up 26 percent year over year. In constant currency terms, EMEA grew 19 percent, reflecting strengthening of both the euro and the British pound.

“APAC revenues were $5.1 billion, up 36 percent versus last year and 34 percent in constant currency, reflecting strengthening of the Japanese yen and Korean won. Other Americas revenues were $1.8 billion, up 31 percent year over year and 34 percent in constant currency, reflecting the strengthening of the dollar relative to the Brazilian real.

“Headcount at the end of the quarter was 89,058, up 4,008 from last quarter. As in prior quarters, the majority of new hires were engineers and product managers. In terms of product areas, the most sizeable headcount increases were in cloud, for both technical and sales roles.”

Other bets not paying off – yet

Addressing the drain on Alphabet’s finances from its other bets division, Google CEO Pichai said, “We’re pleased with our progress across other bets.

“Waymo expanded its partnership with Fiat Chrysler, with the option to add up to 62,000 Chrysler Pacifica minivans to its self-driving fleet. And Waymo announced that it has driven more than eight million fully autonomous miles, with most of those on city streets.”

CFO Porat added, “We remain very excited about the opportunity with Waymo. You’ve seen us talk about our progress on a number of fronts. I think the main point is, it’s still very early.

“In, 2018, the focus has been to launch the commercial rider programme in Phoenix that we’ve talked about, and we’re looking to do that by year-end. We view that as a first step in building a more fully rolled-out rider programme in the future.

“We’ve also continued to build out our vehicle relationships. You saw announcements regarding FCA and Jaguar. We’re expanding our testing to more states. We’re also working on additional areas, such as logistics and deliveries.

“We talked this past quarter about licensing the technology for personal-use vehicles, and we’re also focused on working with cities to help strengthen public transportation.”

X marks the spot

As reported by Internet of Business, Alphabet’s research division, X, announced earlier this month that projects Loon and Wing have been spun out to become independent companies under the Alphabet umbrella. Wing becomes Alphabet’s drone delivery unit, while Loon will create WiFi balloons for mobile internet access.

“Graduation from X signals that these companies have reached certain technical and business milestones and their focus is shifting toward commercialisation,” said Pichai. “Just last week, Loon indicated that it is partnering with Telkom Kenya to launch a commercial service in regions of Kenya by early 2019.”

Pichai then turned his attention to the rising prominence of AI in Google’s product portfolio. “There are many great AI-powered features we rolled out this quarter,” he said, “including the new version of Gmail with Smart Compose, a new feature that helps users craft emails faster. And Google Photos now suggests actions to help you brighten, share, rotate, or archive a picture.

“At Google I/O, we highlighted how AI is improving Google Maps, including enhancing the experience with Assistant and AR features.

“Through our improvements in machine learning, we have seen a 25x increase in our ability to build maps algorithmically, and we have added 110 million algorithmically drawn buildings to Maps, since the beginning of this year.

“And with over one billion users, we’re continuing to see tremendous growth in Maps, with especially strong growth in countries like Indonesia, India, and Nigeria, each of which are growing by over 50 percent year on year.”

Emerging economies of scale

Pichai said that building technologies for “the next wave of people coming online for the first time” in those countries is a key priority for Google, especially as many will only experience the Web through their mobile phones.

“This is a big area of focus for us. Through a great partnership with Indian Railways, and RailTel, we have hit our goal of enabling high-speed public Wi-Fi in 400 train stations across India. We’ve also rolled out the Google Station model in Indonesia and Mexico, with more to come soon.

“And to help spur AI innovation in Africa, we recently announced the new Google AI research centre in Ghana, with the goal of bringing together top machine learning researchers and engineers to explore AI research and applications in Africa and beyond.”

Internet of Business says

A positive set of results, and an intriguing presentation of them in Pichai and Porat’s earnings call to analysts – as much for what it didn’t say than for what it did.

No mention, for example, of Google’s ethical focus this summer for its AI portfolio, perhaps because it was the result of employees’ rearguard action. And little mention of cloud strategy and innovation – but that was because, with Google Cloud Next starting today in California, we can expect a range of new announcements over the next 36 hours.