Alphabet discloses YouTube, Cloud revenues for the first time

Google broke out numbers for its YouTube and cloud businesses for the first time in its fourth-quarter 2019 earnings report Monday. But the disclosure was limited in scope, making it difficult to gauge the profitability for those businesses.

YouTube ads generated $15.15 billion in revenue in fiscal 2019, with $4.72 billion in the fourth quarter alone. The segment generated $11.16 billion in revenue in 2018, including $3.61 billion in the the fourth quarter of that year. The segment does not include YouTube’s nonadvertising revenue, like subscriptions for YouTube TV, which are included in Google’s other revenue segment.

On a call with analysts, Ruth Porat, the CFO of Google and YouTube’s parent company Alphabet, said YouTube’s nonadvertising revenue reached a $3 billion revenue run rate in the fourth quarter. She added that the majority of YouTube ad revenue goes to creators, though Google does not break out that number.

A Google spokesperson declined to say what percentage of YouTube’s advertising revenue goes to its creators, making it difficult to gauge how profitable it actually is, despite impressive growth in gross ad revenue over the last two years. 

Google’s cloud business generated $8.92 billion in revenue in fiscal 2019, with $2.61 billion generated in the fourth quarter. That compares with 2018 revenue of $5.84 billion for the cloud business, with $1.71 billion generated in the fourth quarter of that year.

Shares of Google’s parent company Alphabet were down about 3.5% after hours.

Analysts have long called for Google to report YouTube’s earnings separately, as it is thought to be a substantial part of its advertising business. To put YouTube’s revenue in perspective of another media company, it generated more from ads in 2018 than Discovery, which reported annual revenue of $10.6 billion compared to YouTube’s $11.16 billion. Discovery has not yet reported its full-year 2019 results.

Google’s cloud business is a younger but fast-growing segment of the business with ambitions to take on Amazon Web Services (AWS) and Microsoft Azure. In July, Google said its cloud unit had just reached $8 billion in annualized revenue and planned to triple its sales force over the next few years.

The move toward greater transparency comes during CEO Sundar Pichai’s first earnings report leading Google’s parent company, Alphabet. Former Alphabet CEO and Google founder Larry Page stepped down from the position in December, leaving Pichai in charge of the broader business. Page and co-founder Sergey Brin, who simultaneously stepped down as president of Alphabet, still retain controlling voting shares of the company.

Google has been under close watch by federal and state regulators searching for any indication of anti-competitive behavior. A coalition of 50 attorneys general from different states and territories have announced their investigation into Google’s ad business. The new disclosure gives investors more insights into the different parts of Google’s ad segment that investigators might be looking at.

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