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Is Google’s Cloud Revenue Growth Sustainable?

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Google’s Other segment is seeing robust growth

Alphabet’s (GOOG)(GOOGL) Other segment, which excludes advertising and includes Google Play Store and the cloud business, grew 42% from 2Q16 to $3.1 billion. The Other segment makes up 12% of the company’s total revenue.

According to Google CEO Sundar Pichai, the tech giant recorded three times as many large deals in its cloud segment in fiscal 2Q17 as it did in 2Q16. Mr. Pichai defines large deals as those greater than half a million dollars.

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Is this growth sustainable?

The company has been looking to diversify its business away from search advertising for years. The cloud segment is probably Google’s fastest growing business. Google does not disclose its cloud revenue. However, the Other segment, which includes the cloud business, grew 42% YoY (year-over-year), and is growing much faster than its traditional business.

According to The Wall Street Journal, Google believes that its cloud business can eventually generate more revenue than its digital ad business. The latter accounts for 88% of the company’s total revenue. The company believes it could beat cloud pioneer Amazon (AMZN) to become the world’s largest cloud infrastructure vendor within the next five years, meaning the company has a lot of room for growth in the cloud business.

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