Expanded Search Results – Google Opens Up with Q4 Earnings

One of the questions investors have had for Google the past several years was just how big its YouTube and Cloud businesses were. Every quarter, Google would pretty consistently cite strong growth from mobile search, YouTube and Cloud, yet didn’t break out those businesses separately. That changed with the announcement of Google’s Q4 and full-year 2019 earnings earlier this month. 

Google reported that overall revenues increased by 19% for Q4 2019 and 20% for the full year 2019 (both in constant currency) and also disclosed the size and growth rates for its YouTube and Cloud businesses.

Ads on YouTube represented $15 billion of 2019 annual revenue, which is 11% of total advertising revenues. Note that this number only represents ad revenue, since YouTube subscription revenue is booked elsewhere. The YouTube portion of the business is growing rapidly with 2019 revenue growth of 35.8%, and commerce-related video is certainly a portion of this. Google’s CEO Sundar Pichai addressed a question about YouTube monetization on the earnings call, saying: “I think when you look at the fact that people are consuming a lot of goods and services as part of their experience in YouTube, how can we create better commerce experiences also is a big opportunity for us.”

Some highlights from the quarter:

  • Revenue increased 17% for the quarter (19% on a constant currency basis) totaling $46.1 billion. For the full year 2019, revenue increased 18% (20% on a constant currency basis).
  • Advertising revenues were $134.8 billion for 2019 and grew at 15.8%.
  • Cloud represented $8.9 billion of 2019 annual revenue and grew at 52.8%.
  • Other revenue, which consists of Google Play, Hardware and YouTube’s non-advertising services, was $17.0 billion — growing 21%.
  • Operating income was $9.3 billion, up from $8.2 billion a year ago. Full-year operating income was $34.2 billion.
  • Hiring continued, and Google now has nearly 119,000 employees.

The fact that YouTube is growing significantly faster than Google’s overall advertising revenues highlights that core Google ad revenues are not growing as quickly. In fact, Google Ad Revenue in 2019 (excluding YouTube ads) posted growth of 13.6%, which is a decline from the 20.5% posted in 2018. And when compared to both Facebook and Amazon’s current growth rate, Google’s growth is fairly modest.

One of the areas we consistently watch — as it’s important for brands and retailers — is the click growth on Google. Past readers will know that click growth slowed down fairly significantly throughout 2019. For now, Google isn’t highlighting a quarterly number, but we are able to closely estimate it using the annual change that was disclosed.

For Q4, that click growth continued to decelerate down to 9%, which is the lowest in at least the last five years. We certainly believe some of this deceleration is due to comping very strong growth rates in the last couple of years as mobile rates exploded. However, it’s hard to believe that the rise of Amazon hasn’t caused any headwinds on search volume. 

Ultimately, as Google stated on the call, the search giant wants to “create the most helpful products for everyone”… knowing that if they do, the clicks will inevitably follow.