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Google, the World's Most Valuable Company, Seeks Cloud Dominance

Alphabet, the parent company of Google, has unseated Apple as the world's most valuable publicly traded company, and it appears it's growing faster than analysts expected with no slowing down in sight.

It's the first time the company has broken out its businesses since creating the new structure back in August. Alphabet reported revenues of $21.3 billion for the fourth quarter of 2015, up 18% over the same period last year and $500 million higher than analysts had forecast for the quarter. Revenues for last year of $75 billion increased 14% over 2014. Operating income of $23.4 billion was up 23%, with Google's core business showing a 38% operating margin, up from 35% in the prior year.

It was little surprise that the core Google business -- which includes its search engine, advertising, Android, YouTube and Gmail -- accounted for the bulk of revenues. But having insight to the non-core businesses gave investors a sense on how the flagship operation is performing. It also explained to what extent Alphabet's so-called "other bets" are putting a drag on margins. Taking a look at the entire year, Google's revenues were $74.5 billion with operating income of $23 billion, compared with 2014's revenues of $65.7 billion and operating income of $19 billion. Revenue for "other bets," also described as "moonshots," were $488 million, up from $327 million. However, those "other bets," which include businesses such as its driverless cars, Nest home automation, Fiber and Verily healthcare, showed a loss of $3.6 billion compared with 2014's $1.9 billion.

  Twelve Months Prior to December 31, 2014 Twelve Months Prior to December 31, 2015
Google Segment Revenues (in millions)

$65,674

$74,541
Google Operating Income (in millions) $19,011 $23,425
"Other Bets" Revenue (in millions) $327 $448
"Other Bets" Operating Loss (in millions) $1,942 $3,567

While the company talked up a growing Google Apps business, it's not viewed as a huge moneymaker despite the fact that it has one of the world's largest scale infrastructures. Google has already signaled it's going to step up its enterprise efforts with the hiring of VMware founder Diane Greene.

Google CEO Sundar Pichai emphasized the company's goals during Monday's earnings call with analysts. "We are already getting significant traction," Pichai said. "It's a strongly growing business for us. And we plan to invest significantly in 2016. It'll be one of our major investment areas."

Pichai said the Google cloud already hosts 4 million trusted applications and he pointed to the infrastructure that hosts its search business and YouTube as an example of the scale it can bring to enterprise customers. "Public cloud services are a natural place for us," he said. "Our datacenters, infrastructure, machine learning, and premium data services are leaders in the cloud space, as is our price-to-performance ratio," he said. "And we are now able to bring this to bear just as the movement to cloud has reached a tipping point."

Posted by Jeffrey Schwartz on 02/03/2016 at 1:27 PM


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