June 17, 2024
How Google (Alphabet) Makes Money: Advertising and Cloud


Alphabet is a collection of different businesses. Most know it as the parent company of Google, with its Class A (GOOGL) and its Class C (GOOG) shares. But the company also offers a variety of software and internet-related services and solutions, including web browsing and searching, cloud computing, streaming entertainment, mobile operating systems and applications, and more. Alphabet leverages its various platforms and services to generate a substantial portion of its revenue from advertising.

Key Takeaways

  • Alphabet is a collection of different companies, including the popular search engine Google.
  • The company leverages its search, web browsing, mobile operating systems, and cloud computing to make money through the sale of advertising and various service fees.
  • Advertising generates the majority of revenue, but Google Cloud revenues are growing rapidly.
  • The company has three reportable segments: Google Services, Google Cloud, and Other Bets.
  • Google Services is the most profitable while Google Cloud and Other Bets often post operating losses.

Alphabet’s Revenue Streams

One of the primary ways Alphabet generates revenue through advertising is through its Google Ads program. Whenever you use Google’s search engine, an algorithm generates a list of search results. The algorithm attempts to provide the most relevant search result for the query as well as related suggested pages from a Google Ads advertiser.

Google generates fees from advertisers when users engage with the ad in some way, such as by clicking on it or by simply seeing the ad. Advertisers pay Google to have their pages suggested to users and will attempt to outbid each other for the top spot on the search result list.

Alphabet also generates ad revenue from the Google AdSense program, which works similarly to Google Ads. But it differs in that it enables non-Google websites to incorporate Google display advertising on their pages. When a visitor clicks on a display advertisement on a member’s website, a portion of the revenue is paid to the site owner while Google keeps part of the fee.

Alphabet competes with companies that provide online platforms for connecting people with information and relevant advertising, digital content and application platforms, enterprise cloud services, and more.

Alphabet’s Financials

Alphabet reported revenue of $282.84 billion for the 2022 fiscal year (FY) ending Dec. 31, 2022. That’s a 10% increase from the $257.64 that the company reported the previous year. Operating income came in at $74.84 billion compared to $78.71 billion in 2021. Net income dropped between 2022 and 2021 to $59.97 billion from $76,03 billion.

The company reported the following for each reportable segment for the 2022 fiscal year:

Alphabet’s Financials by Reportable Segment
  Google Services  Google Cloud  Other Bets 
Revenue  $253.53 billion  $26.28 billion  $1.07 billion 
Operating Income (Loss)  $86.57 billion  -$2.97 billion -$6.08 billion 

The company said it is confident about its deep computer science investments and is “extremely well-positioned” in the artificial intelligence market. Alphabet also remains confident in its cloud, YouTube, and Pixel segments.

Alphabet’s Business Segments

Alphabet provides a breakdown of revenue and operating income for its three reportable segments: Google Services, Google Cloud, and Other Bets. It also reports certain unallocated corporate costs, including corporate initiatives, finance and legal costs, and costs associated with certain shared research and development activities.

Corporate costs also include hedging gains (losses) related to revenue. All of these corporate costs are excluded from the segment breakdowns below as well as in the pie charts above.

Now let’s take a look at Alphabet’s individual reportable segments and how they earn money.

The company began separating itself into its three reportable segments as of the fourth quarter of its 2020 fiscal year. Prior to this, Alphabet separated its business into two reportable segments: Google and Other Bets.

Google Services

This segment primarily generates revenue from advertising through Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Other sources of revenue include app sales, in-app purchases, digital content products, hardware, and fees received for subscription-based products such as YouTube Premium and YouTube TV.

Google Services generated revenue of $253.53 billion for the 2022 fiscal year. That’s about 90% of its total revenue. Operating income came in at $86.57 billion. This figure surpassed Alphabet’s total consolidated operating income of $59.97 billion due to operating losses in the other two segments as well as unallocated corporate costs. Google Services is thus the only segment that currently makes positive contributions to Alphabet’s overall operating income.

Google Cloud

The Google Cloud segment is comprised of Google’s infrastructure and data analytics platforms, collaboration tools, and other services for enterprise customers. The majority of the segment’s revenue is generated from fees received for Google Cloud Platform services and Google Workspace (formerly known as G Suite) collaboration tools.

Google Cloud generated $26.28 billion in revenue in 2022, comprising about 9% of total revenue. The segment is still not profitable, posting an operating loss of $2.97 billion during the year.

Other Bets

The Other Bets segment is comprised of a number of different operations that are not individually material. Some of Alphabet’s Other Bets include its autonomous driving business Waymo. Most of the segment’s revenue is generated through the sale of internet services as well as licensing and research and development (R&D) services. The segment reported revenue of $1.07 billion and an operating loss of $6.08 billion in 2022.

Alphabet’s major competitors include Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Meta (META), formerly Facebook, Alibaba Group (BABA), and others.

Alphabet’s Recent Developments

Alphabet made several key announcements that it said would shift its 2023 outlook. For instance:

  • The company reduced its workforce by 12,000 people. The financial impact of severance pay and any related charges was estimated to be between $1.9 billion to $2.3 billion. Alphabet said it expected the impact to be absorbed in the first quarter of 2023.
  • The company said changes made to the useful life of its servers and network equipment would result in a reduction in depreciation of about $3.4 billion.
  • The company said it would make changes to its reportable segments, notably when it comes to its artificial intelligence activities.

How Alphabet Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Alphabet and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Alphabet releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Alphabet discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Alphabet breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Google (Alphabet) Diversity and Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite          
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)

When Did Google Become Alphabet?

Google is one of the world’s most popular internet search engines. The company went public in August 2004 under the name Google. But its leaders 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 creating Alphabet would open up opportunities within Google. The move, he stated, would also allow the company to create and develop new ventures, including investments in new technologies like artificial intelligence and drone delivery. As such, the company’s name changed but retained its ticker symbols on the Nasdaq.

How Can I Invest in Alphabet?

You can invest in Alphabet by purchasing shares of its Class A or Class C shares. Their ticker symbols are GOOGL and GOOG, respectively. The company also has a set of Class B shares but these are only intended for insiders rather than the general public. You can purchase shares by opening a brokerage account, buying shares in a mutual fund, or buying shares of an exchange-traded fund (ETF) that invests in the company.

What Are Some of Alphabet’s Major Companies?

Google is Alphabet’s largest subsidiary, which has several major names under its belt. These include YouTube, Nest, and Fitbit. All of these ultimately fall under the Alphabet umbrella. Alphabet also owns Wing, which develops drone delivery systems, Calico (a health care and biotechnology company), and Verily, a life sciences research organization.

Who Are Alphabet’s Top Institutional Shareholders?

The top three institutional investors of Alphabet are Vanguard, BlackRock, and FMR. As of Feb. 10, 2023, Vanguard owned 482.28 million shares, which represents more than 8% of the company’s outstanding shares. BlackRock’s stake in the company was 415.92 million shares while FMR reportedly owned more than 222.68 million shares as of Feb. 13, 2023.

What’s the Difference Between Alphabet’s Class A and Class C Shares?

Alphabet has several share classes, two of which are intended for regular investors. Class A shares are traded on the Nasdaq under the ticker symbol GOOGL. This class refers to the company’s common shares and gives the investor who holds them voting rights along with ownership rights. Class C shares, which trade under the ticker symbol GOOG, are held by regular investors but more commonly by employees of the company. Unlike Class A shares, GOOG shares do not give investors any voting rights. There is a third class of Alphabet shares. Class B is only intended for insiders like the company’s leadership.

The Bottom Line

Google is one of the largest and most popular search engines in the world. Once its own company, it became part of a newer parent company in 2015. As Alphabet, it owns a range of different companies that span a variety of services, such as internet searching, streaming, drone delivery, health care and life sciences research, and artificial intelligence. If you’re interested in investing in the company, it trades on the Nasdaq under common shares (GOOGL) and non-voting stock (GOOG). You can easily invest in it by opening up a trading account or by investing in mutual fund or ETF shares.



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