Google's ad business is facing its biggest new threat in years, but for Google's Q1 earnings, Amazon's 'bark is worse than the bite'
- Much has been made about Amazon's growing digital ad business - which, in terms of revenue, has established itself as the third biggest player in the market behind Facebook and Google.
- But ahead of Google earnings call on Monday, Wall Street analysts believe the company's core business - which is built on digital search ads - will remain strong.
- "The bark is worse than the bite" when it comes to Amazon's threat to Google's ad business, Dan Ives, a Managing Director of Equity Research at Wedbush Securities, told Business Insider in a recent interview.
- Google-parent Alphabet's "other bets" have also gained the attention of Wall Street analysts, who are especially optimistic about the company's cloud services potential.
Despite the growing threat from Amazon's online advertising operations, Wall Street analysts believe Google's core business - which is built on digital search ads - will remain strong when it reports its Q1 financial results on Monday.
Much has been made about Amazon's growing digital ad business - which, in terms of revenue, has established itself as the third biggest player in the market behind Facebook and Google.
But Wall Street thinks the Amazon threat is too early to show a significant impact on Google.
"Feedback suggests that the ramp in Amazon advertising is having limited impact on core Google search spend, despite negative media headlines to the contrary," Colin Sebastian, a Senior Research Analyst at Baird Equity Research, wrote in an investor's note last week.
Google's advertising revenue was $32.6 billion in the fourth quarter of 2018, up almost 20% from the year prior.
Wall Street analysts expect Google-parent company Alphabet's gross revenue in first three months of the year to total $37.3 billion, up roughly 20% year-over-year.
Dan Ives, a Managing Director of Equity Research at Wedbush Securities, told Business Insider in a recent interview that any time Amazon enters a market, it should be cause for concern for incumbents. But for now, he says, "the bark is worse than the bite," when it comes to Amazon's threat to Google's ad business.
"It's an opportunity for Amazon from an advertising perspective," Ives said. "But I don't see it moving the needle too much for Google."
"Other Bets" gaining momentum
For Google's parent company, Alphabet, the first quarter of 2019 has been a busy one for its other businesses outside of advertising, which it describes on its balance sheet as "other bets."
In March, the company announced its ambitious new video game streaming platform, Stadia, which is scheduled to be available sometime in 2019. Also in March, the company's autonomous car company Waymo grew its operations in Arizona to help expand its driverless ridesharing service program, which it's currently testing and hoping to rival the likes of Uber and Lyft.
The "other bet" catching most of Wall Street's attention, however, is its cloud computing business - Google Cloud Platform (GCP) - under the leadership of the recently appointed Oracle veteran, Thomas Kurian.
"With Kurian now running the show, this is a big opportunity for Google to potentially gain a part of that market," Ives said.
Today, Amazon and Microsoft dominate the cloud market, though Google's new leader has already taken strides to expand its share. In April, at the company's annual conference - Google Cloud Next - GCP unveiled its new hybrid cloud offering, Anthos, along with integrations with over 30 hardware, software and system integration partners including Cisco, VMware, HPE, Intel, and Lenovo.
Still, analysts expect a lot more to come from Kurian and GCP over the coming quarters, especially in regards to fine-tuning the company's efforts to reach more customers.
"Google continues to make strides to commercialize its enterprise cloud platform (GCP)," Baird's Sebastian wrote. "We expect improving momentum as the company updates its go-to-market strategy with improved sales and support."
Ives believes a significant part of GCP's growth strategy will come by way of acquisitions.
"I think this is all a drumroll to significant M&A for cloud for Google over the next six to nine months," Ives said. "Kurian is a serial acquirer from Oracle. They did not bring him over to sit at a desk and do powerpoints at user conferences."