Why does Google have a market cap of >$1.5 Trillion?

Some of my friends and I recently started a YouTube channel, and I was going through the analytics of a video when I saw that there were some ads placed on our videos. Bear in mind, that channel is not monetized yet, so this was unexpected. And I thought this might be a free money maker for YouTube (and in turn, Google) - running ads on videos that they don’t have to pay commissions to.

I then shifted to thinking about how else Google makes its money, and how it has become so big, so let’s find out together. As of today, Google/Alphabet Inc. is worth almost $1.7 Trillion, and they have a lot of products, big ones, that make them so much money that they can be worth thousands of billions of dollars.

One obvious source of revenue for Alphabet Inc. (Parent company of Google) is advertising. The algorithm set up by Google attempts to give out relevant ads to the search results along with suggested pages. Advertisers have to pay to present their ads to consumers. And this is all part of the Google Ads program.

Google also employs something called the Google Adsense program. The process is similar to Google Ads, but the difference is that this program is for non-Google websites. Ads are placed on the non-Google website and the website owner is paid a commission for doing this.

The second major source of Alphabet Inc.’s revenue is Google Cloud. This refers to the infrastructure and analytics platforms built by Google. The major tools created by them in this segment are Google Workspace (called G-suite before) and Google Cloud Platform Services. It has competitors like AWS and Microsoft Azure in this segment, which might get more time in the limelight than their Google counterparts.

Google also earns billions through the apps, hardware and content created by them.

In 2022, out of the total of around $280 billion of revenue Alphabet Inc. reported, more than $210 billion came through different types of ads (Ads, Adsense and YouTube Ads). Google Cloud contributed $26.28 billion and the other products contributed almost $29 billion.

Now to answer the question in the title, with a revenue of $282 billion and today’s market cap (I’m aware this will not be entirely representative of today), the almost $1.7 trillion market cap is only about 6x sales/revenue. and this number is similar to most of the FAANG stocks too. So Alphabet Inc. rightfully commands a more than $1.5 trillion market cap, and don’t forget, they have a significant advantage because of having the search engine that most of the world uses.

Anyway, now you & I both know why this company is worth so much, they simply provide value to a vast number of businesses and consumers. And if you enjoyed this article, you can read more from me here. And do let me know if you want a specific topic covered. Subscribe for free to receive more posts like this every day!