Revenue Recognition rules were approved in 2014 and went into effect in 2017. Yet, Google (Alphabet) did not disclose the revenues for each category.
How were they able to do this?
The Revenue Recognition rules state that whatever the CEO sees must be disclosed to the investing public. In other words, if the revenues for any aspect of the business are broken out to the decision maker, then it has to be broken out to everyone.
Google was able to get away with it by claiming that Alphabet CEO Larry Page did not see the numbers broken out. Google's CEO, Sundar Pichai, did see the numbers but since Alphabet is Google's parent company, Page was the one in charge.
This all changed when Page stepped out of that role and Pichai took over.
In the first earnings report under his reign, Pichai announced the results for the separate entities.
YouTube posted revenues in 2019 of $15 billion, up from $10 billion in 2018. For Google Cloud, the numbers were $8.9 billion, an increase from $5.8 billion in 2018.
These are some healthy jumps, detailing how those facets of Google's business are still very strong. This is also the first time we got a glimpse of how big YouTube really is.
Since we don't have all the numbers, it is hard to guess at what the gross margin is. That said, with $15 billion in revenues, YouTube alone with be a good sized company if it was traded on its own. Some speculated over the years that YouTube was worth more than $100 billion.
I would surmise the profitability of YouTube is enormous. It is not an expensive platform to run. Google is known for their server warehouses so they have plenty of storage. The company also converted many of its locations to renewable energy, saving a fortune in electricity costs.
The content is provided by the users who help to make the platform attractive for advertisers. Of those dollars that come in, a small portion is distributed to the content creators. Google takes the rest. Many long speculated that YouTube was a total cash cow for Google and now we have the answer.
Google is one of the most valuable companies in the world. Along with Microsoft, Amazon, Facebook, and Apple, they are all at or near $1 trillion market caps.
The stock is down after hours as a response to the overall company earnings.
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