While Google’s parent company Alphabet is still very much an advertising company, recent profit estimates show Google’s hardware offerings are quickly becoming integral to the company’s future.
RBC analyst Mark Mahaney wrote in a note to clients late last week that Google’s line of products have “gained critical success and are starting to gain material commercial traction.”
The line of products includes its Home smart speakers, Chromecast streaming devices, Nest cameras and thermostats and its Pixel smartphones.
Typically, Alphabet will lump these hardware sales into an ‘Other revenues’ category in earnings reports.
As of Q3 2018, the Other revenues category accounted for approximately 14 percent of Alphabet’s total revenue, while Advertising accounted for 85.8 percent of total revenue.
RBC projects that the hardware segment will generate a combined $8.8 billion USD (almost $12 billion CAD) in revenue and a profit of $3 billion USD (roughly $4 billion CAD).
Further, RBC estimates that figure will rise to $19.6 billion USD (about $26.7 billion CAD) in 2021.
Additionally, the hardware segment is expected to generate a profit of $6.1 billion USD (approximately $8.3 billion CAD).
On top of growing profits, Mahaney says the real value in Google’s growing hardware business is the platform it gives Google to develop and deploy artificial intelligence software while serving ads.
“Hardware remains a small, but important part of Google given its potential as a key growth avenue and strategic hedge for the company,” Mahaney said.