Alphabet doesn't reveal revenue for YouTube or Google Cloud. Here's why new CEO Sundar Pichai would benefit by being more transparent. (GOOG)

sundar pichai google

Alphabet will reports its fourth-quarter earnings on Monday, but as is its regular practice, it will likely leave out some key information.
The company doesn't break out sales of YouTube, Google Cloud, or some of its other key businesses.
That practice has made it difficult for investors and analysts to evaluate the company.
Alphabet's stock and business could benefit from more transparency, Baird analyst Colin Sebastian said.
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Alphabet is set to report its fourth-quarter results on Monday, but per usual, its report will likely leave investors wishing for more.

Google's parent company notoriously keeps much of its financial information obscured. It discloses some broad categories of revenue, but to date, has declined to break out how much money it makes from YouTube or Google Cloud or Maps or any of its other particular products or business lines.

Some of those who cover Alphabet closely think it's time for the company to reconsider that policy. Its obfuscation is hiding the contribution of its biggest growth engines, they said. Disclosing more details about those business lines would not only provide insights to investors and analysts, it likely would boost Alphabet's stock and business, they said.

"Google is more diverse, in terms of sources of revenue, than they get credit for," Colin Sebastian, a financial analyst who covers the company for Baird, told Business Insider on Friday. "I think if you were talk to investors, they'd still give you the impression that Google is a one-trick pony."

In its public financial statements, Alphabet breaks out how much revenue its gets from its Google unit and from its "other bets," which includes self-driving car unit Waymo and an assortment of other early-stage projects it's launched. Within the Google unit, the company delineates how much advertising revenue it gets from its own sites and also from third-party sites. It also has a line for "other" revenue, which includes everything from the commissions it makes off sales in the Google Play story on Android phones to corporate payments for Google Cloud accounts to consumer subscriptions to YouTube's various paid services.

Investors and analysts have a tough time evaluating Alphabet

But that's about it. There's no way to know how much of the advertising revenue comes from YouTube, versus the company's core search ads business. It's impossible for anyone outside the company to know how much it makes from selling display ads or paid listings on its Maps service. Similarly, there's no way to know just how much money its cloud services bring in by themselves.

That makes it difficult for investors and analysts to evaluate Alphabet's business. Overall, its revenue grew by about 19% in the first three quarters of last year. But that broad number obscures a lot of variation between its mature and newer businesses.

YouTube, in particularly, is likely a huge part of Google's business today and will likely be a big part of its future, said Dan Morgan, a senior portfolio manager at Synovus Trust, which owns some 59,202 Alphabet shares. But that's basically an educated guess.

Information on YouTube "is kind of buried, so you've got to kind of read the tea leaves," Morgan said.

The same is basically true for Google Cloud. The company announced in July that its cloud business had reached $8 billion in annualized revenue. But that was the first time Alphabet officials had made any mention of the financial performance of the business in more than a year and they haven't said anything about it since.

The $8 billion number was a big surprise, Morgan said, and forced many on Wall Street to adjust their models for the business and their assessment of it.

"It was like, 'Oh wow, these guys are becoming more legit,'" he said.

There's a lot about Alphabet's business, even beyond Google Cloud, that investors likely don't appreciate or understand simply because it keeps so much information close to the chest, Sebastian said. It's not well known, for example, that search ads likely don't account for much more than about 50% of its revenue at this point, he said.

Transparency could give Alphabet's stock and business a boost

The company could benefit if more people understood the diversity of its business and the strength of its various non-search components, he said. Investors would likely pay more for its stock if they didn't have the false impression that its business was so dependent on search advertising, he said. They also might be more willing to pay up for Alphabet's stock if they could clearly see some of the fast-growing segments inside its business.

Apple's stock soared last year despite its iPhone sales sputtering, in part because investors could see that it wearables and services businesses were posting strong growth and becoming meaningful contributors to its top and bottom lines. Similarly, Amazon's stock skyrocketed in 2015 after it started to break out the sales of its cloud-computing unit.

If Alphabet gave out more information about its business, "would help investors better understand the power of Google's platform," Sebastian said.

But Alphabet's business could also benefit from greater disclosure of the financial results of its different segments, he noted. Companies might be more willing to buy ads on YouTube or sign up for Google Cloud if they had a better sense of the scale of those businesses, he said.

"Businesses don't understand how large YouTube is or how large Cloud is or how large maps," he said.

Still, there's no indication that Alphabet is going to make a change to its disclosures anytime soon. The super-voting shares held by founders Larry Page and Sergey Brin help insulate the company from any kind of pressure from everyday shareholders. And the company likely has competitive reasons why it doesn't want to give out more information.

Meanwhile, the company's stock has performed well even without any giving out more information. Its shares are up 29% over the last year.

Still, Sebastian thinks more transparency is in the best interests of the company and its shareholders.

"I think, opportunistically, they would want to disclose more," Sebastian said, continuing, "I think that would help investors better understand the power of Google's platform."

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