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Google Q4 Earnings: Growth Needs no Assistant

Google’s parent Alphabet reported Q4 earnings last week and continued its eight-year streak of revenue growth above 20% each quarter. Overall revenue grew 24% from Q4 2016 led by continued strength in mobile, YouTube and programmatic advertising.

As we’ve discussed before, Google is simultaneously operating its existing advertising business while investing in other long-term segments (Cloud, hardware and other bets like Waymo). As Google celebrates its 20th anniversary this year (where has the time gone?), it’s worth pointing out that 16% of the revenue for the quarter was in these other areas.  

Some of the highlights from the quarter:

  • Revenue increased 24% for the quarter and finished 2017 at $110.9 billion.
  • Operating income increased 15% for the quarter, though it was somewhat slowed by increased Traffic Acquisition Costs (TAC) that Google pays.
  • Paid clicks increased 43%, slightly down from last quarter’s 47% increase
  • Average cost per click (CPC) was down 14%; this is the second quarter in a row that the rate of decline slowed.
  • Other revenues were up 38%, which includes Cloud, Play and hardware (Home, Pixel, etc.)
  • YouTube garners 1.5 billion viewers per month.  For comparison:  Facebook currently has 2.1 billion monthly active users, so the YouTube platform isn’t far behind in terms of user count.

Google continues to drive significant growth in the number of paid clicks, which is offset by overall declines in CPC (see graph below).  Through an e-commerce lens, we certainly see organic search as representing very little of the prime real estate (particularly on mobile) these days.  

Google has put out a steady stream of news around the Google Assistant lately.  It was highlighted specifically during the earnings call, so it’s worth thinking about the ecosystem Google is currently building around voice.

Some recent news:

  • Google has reported that Assistant is available on more than 400 million devices — everything from phones to headphones to televisions.  Google had a large presence at CES last month, highlighting some of these innovations and partnerships (and, of course, managed to work in a slide in true Google fashion).
  • Device shipments more than doubled year over year in Q4 and Google has sold “tens of millions” of devices, including the Home, Mini, Max and Chromecast.  Amazon indicated similar stats in its earnings release with “tens of millions” of Echo devices sold in 2017.
  • Integration into more than 400 models of new cars.  I believe voice will be eventually integrated into all the spaces where we spend time (home, work, car, hotels, etc.).And clearly from a safety perspective, Assistant could become very valuable while driving.  This also sets up an interesting convergence of Alphabet/Google tech — Android Auto, Assistant and Waymo.

CEO Sundar Pichai pointed out on the call that it’s still early days, and rather than focusing on monetization in this space, they are focused on the user experience.  This thought process matches what has been reported lately about Amazon and Alexa and the potential for advertising. It shows that both companies view consumer awareness and adoption the key to what ultimately will be a very large market.  

At the end of the day, voice technologies such as Assistant or Alexa are designed to improve our overall interaction with computers, and these interactions certainly take time to get right.  It’s hard to imagine what another 20 years might look like.  

If only “Ok, Google, tell me what Google looks like in 2038” would work….

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