Google’s budget-conscious approach to its Pixel smartphone line appears to be paying off. Google parent company Alphabet posted second quarter earnings for 2019 today, handily beating Wall Street expectations with revenue of $38.9 billion and a profit of $9.9 billion. The profit dwarfs that of the second quarter of 2018, when Google had to dock its net income by a record $5 billion over last year’s antitrust settlement.
The Google ad machine continues to chug along unfazed by any of the company’s numerous scandals surrounding botched YouTube moderation, alleged bias in search results, and looming regulatory threats. (Google’s ad business made $32.6 billion this past quarter, a jump of nearly 20 percent.) But the real spotlight this quarter is on the “Other Revenues” segment. That segment includes the company’s hardware business, like Pixel phones and Google Home smart speakers, as well as its cloud computing division. It was up nearly 40 percent from this time a year ago, to $6.2 billion.
One of the reasons: Google’s less expensive Pixel 3A phone, released in May. “With the launch of Pixel 3A in May, overall Pixel unit sales in Q2 grew more than two times year over year,” Google CEO Sundar Pichai said on an earnings call this evening. Google has never broken out concrete Pixel sales before, so we don’t exactly know how many more units this increase involves. But we do know that Google has had a lot of trouble selling the Pixel 3, even to the point of the company mentioning the struggles in its last quarterly earnings call. The Pixel 3A, which launched on three times as many carriers as the Pixel 2 or 3, is half the price of the Pixel 3, and launched at a time with little to no other major product launches to compete with, certainly should have sold more than the prior Pixel models. Doubling prior sales doesn’t seem all that significant in light of those conditions.
Additionally, Google doesn’t separate out its Other Revenues segment into different categories. So we can’t say for sure whether the 40 percent jump is mostly attributable to those extra Pixel sales, or how much it was helped along by the cloud computing business. But it’s fair to say that both are likely contributing significantly.
In addition to the Pixel 3A, this past quarter included the launch of a number of new features for the company’s G Suite platform and details on its upcoming cloud-based Stadia gaming subscription service. On an earnings call, Pichai also revealed that Google Cloud is now on track to earn $8 billion annually, translating to roughly $2 billion a quarter. The company now plans to triple the work force of the division over the next few years. So it’s clear both divisions are doing well, with clear plans to continue building out both. (We already know the Pixel 4 is coming later this year, probably in October, after Google effectively leaked it itself.)
One area of constant uncertainty, and this quarter is no exception, is the “Other Bets” category. Google lost close to $1 billion from the division, which includes its X lab and the various other companies, like the Waymo self-driving unit and the Loon balloon internet service, that were born as so-called moonshot ideas and turned into full businesses.
It’s not the first time Google has lost this much on Other Bets, but the loss is a noticeable 35 percent jump over this time a year ago. Revenue, thankfully, appears to be increasing, with the division now contributing $162 million for the quarter, an 11.7 percent jump year over year. Yet it looks like the moonshot factory is continuing to cost Google a fortune as it tries to spin up new and profitable ventures that can, one day, take more of the weight off its ad division, as the Pixel and cloud businesses appear to be doing today.
Update, July 26th 2019, 8:30AM ET: Added more context around Pixel sales numbers.