Alphabet is a collection of many different companies. Most people know it as the parent company of Google with its Class A (GOOGL) and Class C (GOOG) stocks. However, the company also offers a variety of software and internet-related services and solutions, including web browsing and search, cloud computing, streaming entertainment, and mobile operating systems and applications. Alphabet generates significant revenue from advertising revenue across its various platforms and services.
Key Takeaways
- Alphabet is a collection of various companies including the popular search engine, Google.
- The company generates revenue from its businesses in search, web browsing, mobile operating systems and cloud computing through the sale of advertising and various service fees.
- Although the majority of its revenue comes from advertising, Google Cloud's revenue is growing rapidly.
- The company has three reportable segments: Google Services, Google Cloud, and Other Businesses.
- Google Services is its most profitable business, while Google Cloud and other businesses often make operating losses.
Alphabet's revenue streams
One of the main ways Alphabet makes money through advertising is through its Google Ads program. Every time you use Google's search engine, an algorithm generates a list of search results. The algorithm tries to provide you with the most relevant search results for your query, as well as related recommended pages from Google Ads advertisers.
Google receives a commission from advertisers when a user interacts with an ad in some way, such as clicking on the ad or simply viewing it. Advertisers pay Google to suggest their pages to users, and then compete with each other for the top spots in the search result list.
Alphabet also earns advertising revenue through the Google AdSense program, which works similarly to Google Ads, except that it allows non-Google websites to embed Google display ads on their pages. When a visitor clicks on a display ad on a member website, a percentage of the revenue is paid to the site owner and Google takes a commission.
Alphabet competes with companies that provide online platforms that connect people with information and relevant advertising, digital content and application platforms, and enterprise cloud services.
Alphabet Finances
Alphabet reported revenue of $282.84 billion for its fiscal year 2022, which ends Dec. 31, 2022. This represents a 10% increase from the $257.64 billion the company reported a year ago. Operating income was $74.84 billion, compared with $78.71 billion in 2021. Net income decreased from $76.03 billion to $59.97 billion from 2022 to 2021.
The company reported the following for each reportable segment for fiscal year 2022:
| Alphabet's financial performance by reportable segments | |||
|---|---|---|---|
| Google services | Google Cloud | Other bets | |
| Revenue | $253.53 billion | $26.28 billion | $1.07 billion |
| Operating profit (loss) | $86.57 billion | -$2.97 billion | -$6.08 billion |
The company said it is “very well positioned” in the artificial intelligence market, citing its heavy investments in computer science. It is also confident in its cloud, YouTube and Pixel businesses.
Alphabet's business segments
Alphabet discloses a breakdown of revenue and operating income for three reportable segments: Google Services, Google Cloud, and other businesses. We also report certain unallocated corporate expenses, such as corporate initiatives, finance and legal expenses and expenses associated with certain collaborative research and development activities.
Corporate costs also include hedging gains (losses) related to earnings. All of these corporate costs have been excluded from the segment breakdown below and pie chart above.
Now let's take a look at Alphabet's individual reportable segments and how they generate revenue.
The company began splitting into three reportable segments starting in the fourth quarter of fiscal 2020. Previously, Alphabet split its business into two reportable segments: Google and Other Bets.
Google services
This segment generates revenue primarily from advertising through Android, Chrome, hardware, Google Maps, Google Play, Search and YouTube. Other revenue sources include sales of apps, in-app purchases, digital content products, hardware and fees received for subscription-based products such as YouTube Premium and YouTube TV.
Google Services generated $253.53 billion in revenue in fiscal year 2022, about 90% of the company's total revenue. Operating income was $86.57 billion. This figure is higher than Alphabet's total consolidated operating income of $59.97 billion due to operating losses in the other two segments and unallocated corporate costs. Thus, Google Services is currently the only segment that is contributing positively to Alphabet's overall operating income.
Google Cloud
The Google Cloud division consists of Google's infrastructure and data analytics platform, collaboration tools, and other services for enterprise customers. The majority of the division's revenue comes from fees it receives for Google Cloud Platform services and Google Workspace (formerly G Suite) collaboration tools.
Google Cloud generated $26.28 billion in revenue in 2022, accounting for about 9% of total revenue. The division is not yet profitable, posting an operating loss of $2.97 billion for the year.
Other bets
The Other Operations segment consists of a variety of businesses that are not individually significant. Alphabet's Other Operations include its self-driving business, Waymo. The majority of this segment's revenue is generated through the sale of internet services, licensing, and research and development (R&D) services. The division reported revenue of $1.07 billion in 2022 and an operating loss of $6.08 billion.
Alphabet's main competitors include Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Meta (META) (formerly Facebook), and Alibaba Group (BABA).
Alphabet's latest developments
Alphabet has made some big announcements that will change its outlook for 2023. For example:
- The company cut 12,000 jobs. The financial impact of severance and related costs is estimated at $1.9 billion to $2.3 billion. Alphabet said it expects the impact to be absorbed in the first quarter of 2023.
- The company said changes to the useful lives of servers and network equipment will reduce depreciation expenses by about $3.4 billion.
- The company said it plans to make changes to its reportable segments, particularly with regard to its artificial intelligence business.
How Alphabet reports on diversity and inclusion
As part of our efforts to raise awareness of the importance of diversity in companies, we are offering investors a glimpse into Alphabet's transparency and its commitment to diversity, inclusion, and social responsibility. We have looked at the data Alphabet publishes to show how the company reports on the diversity of its board and workforce, to help readers make educated buying and investment decisions.
Below is a table of potential diversity measures, showing whether Alphabet publishes data on diversity across its board of directors, executive leadership, general management, and overall workforce (marked with a ✔). It also shows whether Alphabet breaks down those reports to reveal diversity by race, gender, ability, veteran status, and LGBTQ+ identity.
| Google (Alphabet) Diversity and Inclusion Report | |||||
|---|---|---|---|---|---|
| Race | sex | ability | Veteran Status | Sexual orientation | |
| board of directors | |||||
| Executive | |||||
| General Management | ✔ (US only) | ✔ | |||
| employee | ✔ (US only) | ✔ | ✔ | ✔ | ✔ |
When did Google become Alphabet?
Google is one of the most popular internet search engines in the world. The company went public in August 2004 under the name Google. However, the company's management decided to take the company in a different direction by changing its structure and, more importantly, its name. In a letter posted on the company's website in 2015, co-founder Larry Page said that the formation of Alphabet would broaden opportunities within Google. The move would also allow for the creation and development of new ventures, including investments in new technologies such as artificial intelligence and drone delivery, he said. So the company changed its name but kept its ticker symbol on the Nasdaq.
How do I invest in Alphabet?
You can invest in Alphabet by buying Class A or Class C shares, whose ticker symbols are GOOGL and GOOG, respectively. The company also has Class B shares, but these are only for insiders and not the general public. You can buy shares in a brokerage account, buy shares in a mutual fund, or buy shares in an exchange-traded fund (ETF) that invests in the company.
What are some of Alphabet's major companies?
Google is the largest subsidiary of Alphabet, which owns several well-known companies including YouTube, Nest, and Fitbit, all of which ultimately fall under the umbrella of Alphabet. Alphabet also owns drone delivery system developer Wing, medical and biotech company Calico, and life sciences research organization Verily.
Who are Alphabet's major institutional investors?
The top three institutional investors in Alphabet are Vanguard, BlackRock, and FMR. As of February 10, 2023, Vanguard holds 482.28 million shares, which represents over 8% of the company's outstanding shares. BlackRock holds 415.92 million shares of the company, while FMR reportedly holds over 222.68 million shares as of February 13, 2023.
What is the difference between Alphabet's Class A and Class C shares?
Alphabet has several share classes, two of which are aimed at public investors. Class A shares trade on Nasdaq under the ticker symbol GOOGL. This class represents the company's common stock and gives investors voting rights along with their ownership. Class C shares, which trade under the ticker symbol GOOG, are held by public investors but are more commonly held by company employees. Unlike Class A shares, GOOG shares do not give investors voting rights. There is a third class of Alphabet stock. Class B is aimed exclusively at insiders, such as the company's management.
Conclusion
Google is one of the largest and most popular search engines in the world. It was once an independent company but became part of a new parent company in 2015. As Alphabet, it owns a variety of companies across a range of services, including internet search, streaming, drone delivery, healthcare and life sciences research, and artificial intelligence. If you're interested in investing in the company, it trades on the Nasdaq as common stock (GOOGL) and non-voting stock (GOOG). You can easily invest by opening a trading account or investing in mutual funds or ETFs shares.
