Alphabet Inc. (GOOGL Class A and GOOG Class C) is a collection of different businesses with Google being the largest. The company 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.

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. Major competitors include Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Apple Inc. (AAPL), Facebook Inc. (FB), Alibaba Group Holding Ltd. (BABA), and others.

Key Takeaways

  • Alphabet 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.
  • Google completed its acquisition of health and fitness company Fitbit.
  • Google is being sued by the U.S. Justice Department on antitrust violations.

Alphabet’s Financials

Alphabet earned $40.3 billion in net income during its 2020 fiscal year (FY), which ended December 31, 2020. Net income rose 17.3% compared to FY 2019. Revenue for the year was reported at $182.5 billion, up 12.8% from the previous year.

Alphabet noted that COVID-19, despite generating an increase in users' Internet searching activity, adversely affected its advertising revenues during the first half of 2020 as advertisers decreased spending. However, advertisers gradually increased spending throughout the second half of the year.

Alphabet’s Business Segments

Starting in Q4 2020, Alphabet began separating its business into three reportable segments: Google Services, Google Cloud, and Other Bets. The company provides a breakdown of revenue and operating income for each of these segments. 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. Prior to Q4 2020, Alphabet separated its business into two reportable segments: Google and Other Bets.

Google Services

The Google Services segment is comprised of a range of products and services, including ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. The segment generates most of its revenue from advertising. Other sources of revenue 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 $168.6 billion, or about 92% of total revenue, in FY 2020. Advertising revenue, at $146.9 billion, comprised 87% of the segment's revenue. The segment's revenue is up 11.1% compared to FY 2019. Google Services posted an operating income of 54.6 billion, up 11.4% from the previous year.

This figure surpassed Alphabet's total consolidated operating income of $41.2 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.

Paid clicks decelerated to an annual rise of 19% in FY 2020 compared to FY 2019, when paid clicks rose 23% compared to the prior year. Cost-per-click accelerated its annual decline to 10% in FY 2020 from an annual decline of 6% during the previous year.

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 $13.1 billion in revenue during FY 2020, comprising about 7% of total revenue. It was Alphabet's fastest-growing segment during the year with revenue up 46.4% compared to FY 2019. However, Google Cloud is still not profitable, posting an operating loss of $5.6 billion. That is larger than the $4.6 billion operating loss reported for the previous year.

Other Bets

The Other Bets segment is comprised of multiple different operating segments that are not individually material. Some of Alphabet's Other Bets include its autonomous driving business Waymo and its cloud-gaming platform Stadia. Most of the segment's revenue is generated through the sale of internet services as well as licensing and R&D services.

Other Bets generated $657 million in revenue in FY 2020, falling 0.3% from the previous year. It comprises just a tiny fraction of Alphabet's total revenue. Other Bets posted an operating loss of $4.5 billion, but that loss narrowed from $4.8 billion reported for FY 2019. The segment has reported an operating loss in every fiscal year since 2016.

Alphabet’s Recent Developments

On January 14, 2021, Alphabet announced that Google completed its $2.1 billion acquisition of Fitbit first announced in November 2019. Fitbit provides wearable fitness products and mobile fitness applications.

On January 4, 2021, a small group of Google employees announced that they had joined together to form a union aimed at organizing workers across the company's global operations. The Alphabet Workers Union has the backing of about 200 of the approximately 132,000 workers employed by the company. Representatives of the union say that it will be affiliated with Communications Workers of America Local 1400. The immediate goal of the union is not to pursue collective bargaining or formal recognition from Alphabet, but to work towards ensuring that workers are able to speak about the company without suffering repercussions to their careers.

On October 6, 2020, after a 16-month investigation into the business practices of tech behemoths Apple, Amazon, Facebook, and Alphabet, the House Judiciary subcommittee on antitrust released its recommendations on how to reform laws to avoid the continued emergence of digital monopolies. The Democratic-majority staff presented a nearly 450-page report concluding that the four Big Tech companies dominate the industry in ways that affect the U.S. economy and democracy, suggesting Congress implement changes to antitrust laws that could result in parts of the businesses being separated.

On Oct. 20, 2020, the Justice Department filed suit against Google, launching the first major antitrust suit based on the current round of DOJ antitrust investigations against big tech companies. The suit accuses Google of illegally protecting its dominant position in the search market by making deals with smartphone makers in which Google pays them to make Google the default search engine on their devices. This was followed up by a suit by 10 attorneys general on Dec. 16, 2020, alleging that Google had made an anti-competition agreement with Facebook regarding online ads, while also overcharging publishers using its monopoly power. A third suit filed on Dec. 17 by 38 attorneys general alleged that Google maintained a monopoly on internet searches by discriminating against other search engines and online information providers.

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)