How Google Cloud revenue grew significantly in Q2 2017

TBR analyst Meaghan McGrath estimates that Google Cloud revenue grew more than 58 percent to $1.2 billion in Q2 2017.

Growth drivers were a strengthening of sales, customer support, and partnerships around Google Cloud Platform (GCP); capacity expansion; growth across geographies, verticals and customer segments; and three times the number of large enterprise deals in excess of $500,000 than the prior year.

TBR said investments across critical sales and support channels induce still-early growth for Google Cloud, amplifying executive confidence in the business’ future.

Alphabet executives agree that Google Cloud is a strategic growth area that will benefit in the long-term from focused investments in personnel and technology to enrich the business’ strengths across artificial intelligence, data and analytics, security and service reliability.

Google Cloud generates less than 5 percent of Alphabet’s revenue. Alphabet revenue grew to $26 billion (+21 percent) – driven by Google’s advertising business which rose 18 percent to $22.6 billion.

Google has worked on improving its advertising business, not only improving tools for webmasters and advertisers but also improving ad experiences for mobile and YouTube users.

Google achieved 52 percent increase in aggregate paid clicks and a 23 percent drop in aggregate cost-per-click. Traffic acquisition costs (TAC) rose 28 percent to $5.1 billion, representing 22 percent of Google advertising business revenues.

“The European Commission’s fine to Google’s ranking practices in Europe played a significant role in Alphabet’s operating margin decline from 28 percent in 2Q16 to 16 percent in 2Q17. Other factors include growing TAC, headcount rising 13.5 percent year-to-year to 75,606 and capex spend on data center assets,” said Dan Callahan, analyst at TBR.

Google’s Other revenue increased 42 percent due to increasing media sales in its Play store along with increased traction with its enterprise products and cloud services. Other Bets grew revenue 34 percent to $248 million.

Despite being hit by the impact of a $2.7 billion European Commission’s (EC) anti-trust fine, Alphabet, the parent company of Google, has still posted $26 billion in revenue in the second quarter of 2017.

Alphabet reported a net income of $3.5 billion.

“With revenues of $26 billion, up 21 per cent versus the second quarter of 2016, we’re delivering strong growth with great underlying momentum, while continuing to make focused investments in new revenue streams,” said Ruth Porat, chief financial officer of Alphabet.

The revenue takes into account the impact of the $2.7 billion EC fine, which was accrued in the second quarter of 2017 that ended June 30.

“On June 27, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law,” Alphabet said.

“The EC decision imposes a 2.42 billion euro fine, which we accrued in the second quarter of 2017,” it added.

Google’s advertising revenue rose 18 per cent to $22.7 billion, driven by a 52 per cent rise in paid clicks. Google-owned YouTube was a strong contributor to revenue growth.

According to Google CEO Sundar Pichai, 1.5 billion people visit YouTube each month, with each spending an average of 60 minutes a day watching its videos.

Google’s revenue from Google Play, hardware and its Cloud business rose 42 per cent to $3.09 million.

“We rolled out new machine learning features in Google Maps, YouTube, Gmail and Google Photos,” Pichai said.

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