When Google’s parent company Alphabet reports its fourth-quarter results Thursday, the usual suspects — mobile search and YouTube — are expected to drive most of its revenue growth. But there’s also potential for Google’s nascent push into hardware to make a mark.
With the release of two new high-end gadgets during the holiday quarter — the Pixel smartphone and Amazon Echo-like Home, a speaker for Google’s voice-powered “Assistant” — Google will start seeing an increased revenue stream from something that isn’t search and ads.
Overall, Alphabet is expected to report $25.2 billion in revenue, which would represent 18 percent year-over-year growth. The vast majority of that revenue comes from Google’s core search and ads business — and only a fraction from other Google businesses, such as its “G Suite” business software, and from Alphabet’s “Other Bets,” the group of smaller, experimental subsidiaries beyond Google that includes Nest, Fiber internet access, and X.
Google’s newly expanded hardware business isn’t likely to make a big dent yet. But given their prices, if Google’s devices become hits, they eventually could.
For example, if Google were to sell 1.5 million Pixel phones at an average of $650 each, that would add up to nearly $1 billion in revenue — not bad, even for a company Google’s size.
Though as promising as that sounds, we don’t know how much revenue would be offset by the cost of investing in hardware, a new area where profitability is presumably a longer-term goal.
In other words: “This hardware business could be a meaningful revenue driver, although the potential impact to profitability is much less clear,” Jefferies analyst Brian Fitzgerald wrote in a recent research note.
Where would Google’s hardware sales show up in its results?
Unless the company changes the way it reports its sales, we’d expect it to be included in its “Google other revenues” segment — one we’ll be watching when Alphabet reports its results.
For context, Google reported $2.4 billion in “other” revenue during the third quarter of 2016, up 39 percent from the previous year and representing about 11 percent of Google’s total sales.
Another thing to watch: Alphabet’s “Other Bets.”
Since Google restructured into Alphabet in 2015, investors have received more visibility into the business of “moonshot” innovation — and the experiments, by design, still aren’t making money. Jefferies, for example, expects an “Other Bets” operating loss of $673 million on $213 million in projected revenue. That’s compared to a reported $665 million operating loss (excluding stock-based compensation) on $197 million of revenue in the third quarter.
This article originally appeared on Recode.net.