Google Stock to Get Big Push from Cloud Strategy

goog stockGOOG Stock Going High on Strengthening Cloud Developments

Alphabet Inc (NASDAQ:GOOG, GOOGL)-owned company Google has been focusing on expanding its revenue sources, and “Google Cloud” is an important part of this plan.

As it became clear from the recently concluded Google Cloud Next ’17 Conference, the company is betting heavily on the lucrative enterprise market. GOOG stock has been inching gradually upward, and Google stock closed at $852.12 on Friday.

The best part of investing in Google stock is that, not only does it have a strong moat, it has a huge potential for future growth. It is here that things become more interesting. Although Google stock has not been a great performer as of late, this should not distract you from looking at the big picture.

In January, Google announced quarterly earnings that missed expectations, but revenues gained on account of a good showing by “YouTube” and mobile search. Alphabet also reported higher costs as it invested more in talent and core business.

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On a call with analysts, Alphabet Chief Financial Officer Ruth Porat said that newer forms of advertising on Google like mobile search, YouTube, and automated ad buying have only begun to scratch the surface. She stated that these were sizable opportunities that have not been tapped yet, and further said that the cloud, hardware, and YouTube subscriptions could be big revenue drivers for the company in the coming several years. (Source: “Google Parent Alphabet Finds New Growth Beyond Search,” The Wall Street Journal, January 26, 2017.)

Google Cloud as a Catalyst for Google Stock

As Ruth Porat clearly explained the potential of Google Cloud, the recently concluded Google Cloud Next Conference clarified lot of things.

That Google is becoming serious about the enterprise market was evident from its Google Cloud Next ‘17 Conference, which concluded on March 10. It was a great show of how far the firm has come in enterprise cloud applications.

The company showcased an impressive list of new clients for its “Google Cloud Platform,” with the major ones being Verizon Communications Inc. (NYSE:VZ), Walt Disney Co (NYSE:DIS), and Colgate-Palmolive Company (NYSE:CL). Google also announced a number of new and upgraded cloud services at the conference.

Google Cloud Platform is considered to be the third-largest cloud provider in terms of revenue behind “Amazon Web Services” from Amazon.com, Inc. (NASDAQ:AMZN) and “Microsoft Azure” from Microsoft Corporation (NASDAQ:MSFT). The set of intelligent apps like “Gmail,” “Docs,” “Drive,” and “Calendar”—that most of us have been using for our collaboration work—add up to form “G Suite,” which is also a Google Cloud offering.

Google stock has gained about 15% in the last year, and has underperformed the broader S&P 500. Going forward, however, the sentiment for GOOG stock is likely to improve as investors realize the potential of the company’s cloud business. Add to this the progress in the company’s “Other Bets” category, such as the  “Nest” home automation products and the “Waymo” self-driving car technology, and this really brightens things up for investors.

goog stock chart

Chart courtesy of StockCharts.com

The above Google stock chart shows how the stock has slightly underperformed the broader S&P 500 Index over the last year. However, the growth factor is likely to come into play in the coming days, and that is what you, as an investor, should be focused on.

The Bottom Line on GOOG Stock

Google posted revenue of $90.0 billion in 2016, an increase of 20%.

The company’s efforts of diversifying itself from the advertising business seem to be paying off, as its non-advertising sales in the last quarter jumped by 62% year-over-year to $3.4 billion. This dollar figure comprises the sales from “Google Play,” Google Cloud Platform, and the company’s hardware businesses.

Google Cloud is likely to gain share in the coming months. As more and more companies find the benefits of Google Cloud on account of technical superiority and pricing, there is a very good chance that it could overtake Microsoft Azure and emerge as a strong contender to Amazon Web Services. Google Cloud Platform is the next big catalyst for Google stock and investors are likely to benefit from this growth story in the medium to long run.