uploads///Proportion of Alphabets Revenue from Advertising

Could Alphabet Exit Its High-Speed Internet Business?


Feb. 16 2017, Updated 7:36 a.m. ET

Move shows Google Fiber is here to stay

Alphabet’s (GOOGL) Google Fiber recently expanded into a new market: Raleigh, North Carolina. Although subtle, the move suggests that Alphabet is in the Internet service business to stay despite recent speculation that the company could be planning to exit the high-speed Internet market. The speculations were sparked by Alphabet’s move to pare down its Google Fiber workforce.

Google Fiber is part of Alphabet’s operations geared toward expanding the company’s nonadvertising income. Alphabet has been aggressively seeking growth outside its core advertising business at a time when it’s facing increasingly tough competition from Facebook (FB), Twitter (TWTR), Snap, and others for online advertising budgets.

Advertising accounted for 85.9% of Alphabet’s (GOOGL) revenues in 4Q16, down from 89.4% in 4Q15, as the chart above shows. The decline of advertising income as a proportion of total sales suggests that Alphabet’s nonadvertising business push is beginning to bear fruit.

Alphabet’s nonadvertising businesses include Google Play, Hardware, and Cloud Computing. The segment’s sales rose 62% to $3.4 billion in 4Q16.

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Other Bets revenues spike 75%

Alphabet reports all operations outside its core Google Search business under its Other Bets segment, whose sales rose 75% to $262 million in 4Q16. Google Fiber is reported under Other Bets alongside its driverless technology unit, Waymo; its smart home unit, Nest; and other experimental projects.

Not only did Other Bets’s sales increase in 4Q16, but losses in the segment also fell 10% compared to 4Q15. Google Fiber competes with incumbents such as Comcast (CMCSA), Verizon (VZ), and AT&T (T).


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