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Spotlight On Cloud, Pixel Put By Google's Search For Non-Ad Revenue

Spotlight On Cloud, Pixel Put By Google's Search For Non-Ad Revenue
Having long been sandwiched between Google's advertising juggernaut and its moonshot ventures that have captured popular imagination has been Alphabet Inc's non-advertising business, which houses its cloud unit, Pixel smartphones and the Play store.
Noting an amount that is already bigger than Twitter Inc's annual revenue, a 49.4 percent jump in revenue to $3.10 billion on Thursday was posted by the business which is categorized as "Other Revenue" in its earnings report.
Compared with 10 percent a year earlier, the business now represents about 13 percent of Alphabet's total revenue.
A light is shone on Google's efforts to cut down its dependence on revenue from advertising, where it competes with Facebook Inc. even though that may not be a big jump.
"(Google) is doing a good job, a much better job in diversifying revenue than Facebook is," said analyst James Wang of ARK Investment Management. "We think that is quite an impressive achievement."
within the "Other Revenue" segment, Alphabet does not break out revenue contributions. But among the category's clutch of businesses, cloud is the most prominent, analysts have said.
But still, compared to market leader Inc's Amazon Web Services and Microsoft Corp's Azure, Google's cloud venture is still much smaller.
But Google is investing heavily.
"In Q1, our largest growth in headcount and capital expenditure was in cloud," Google Chief Executive Sundar Pichai said on a call with analysts on Thursday.
In the first quarter this year, there was a 43 percent growth in Amazon's cloud business which rose to $3.66 billion. Comparatively, Microsoft's cloud unit grew 93 percent.
"We believe Google will continue to gain traction in the cloud market, and when combined with Google Play and sales of Google's hardware products, we see Google's 'other' revenue growing 38 percent to nearly $14 billion in 2017," Morningstar analyst Ali Mogharabi wrote in a client note.
Last year Google released the Pixel phone and the Google Home, a smart speaker like Amazon's Echo, both together make a pair of high-profile hardware products, and since then the company's hardware business has also started gaining traction.
"People are hankering for a really awesome Android phone that basically gives them the iPhone experience," Wang said, adding that the growth in Google's "other revenue" bucket this quarter "shows sustained momentum for the Pixel."
But still what is not going to change any time soon is ads and the company’s lion's share of revenue comes from the ads its various platforms get.
The company reported on Thursday that in the first quarter, the total advertising revenue from ads increased 18.8 percent to $21.1 billion.
Beating Wall Street estimates, profit also rose 29 percent to $5.43 billion.
And after the earnings report, price targets on the stock was raised by at least 10 brokerages.
Its "Other Bets" business, considered the company's loss-making arm, is also included in Alphabet's drive for diversification.
This is because a first-quarter loss of $855 million was posted by the business which is home to the Waymo self-driving car, Google Fiber and thermostat-maker Nest.
Google's shares were up 4 percent in premarket trading on Friday. They have gained 12.5 percent this year.

Christopher J. Mitchell

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