Tuesday, Feb 4th 2020

Google Q4 Earnings: The Big YouTube and Cloud Reveal


On Monday after hours, Google fell -4% after reporting Q4 revenues that came in 2% below analyst expectations.

But far more importantly, the quarter marked the first time Google has ever disclosed segment data for Search, YouTube, and Cloud.

Historically, financial metrics for those segments had been grouped in a way that made it difficult for investors to assess the contribution of each.

The new disclosures helped investors finally gain important insight into the size of several key properties sitting inside the tech giant.

Most notably, they revealed a YouTube that is currently generating $22 billion in run-rate revenue (including advertising and subscription revenues).

For context, that's roughly the same amount as what Netflix is currently generating!

The revenue mix is of course different very different from Netflix's, with the majority of YouTube's revenue coming from advertising as opposed to straight subscription fees.

However, we found it very impressive that sitting inside Google was a streaming video giant, acquired for just $1.65 billion in 2006, that is currently generating as much revenue as the industry leader in the space.

Importantly, we believe this asset is still dramatically undermonetized relative to other digital media platforms, a view that CEO Sundar Pichai also expressed on the investor call:

"On the question around YouTube, I do think there is a lot of opportunity ahead…I think there is more room, significantly more room over the mid to long-term on monetization levels."

Beyond YouTube, we were also impressed with the new disclosures around the Cloud business, which ended 2019 generating $10 billion in run rate revenue.

While this still places Google's offering firmly in third place after Amazon's AWS and Microsoft's Azure, it was a larger revenue figure than we had expected and supports the anecdotal commentary we've increasingly heard around the pickup in adoption of Google's cloud offering.

Critically, GCP's growth rate accelerated in 2019 to a rate "meaningfully higher" than 53% Y/Y (the growth rate of Google's broader Cloud segment).

When placed in context alongside Azure's Q4 acceleration and AWS's Q4 stabilization, we think this data collectively paints a mosaic of an enterprise cloud market that growing rapidly with a long secular runway ahead.

Overall, we were pleased with the new level of disclosures provided in Google's year-end report and look forward to tracking the new segment data closely over the coming months. In the words of CEO Sundar Pichai:

"Differentiation is not just what we bring to table in terms of Cloud where we have differentiated capabilities... it's what we bring as Google."

As of this writing, GOOG was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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