Analyst says Google's hardware will produce nearly $3 billion in profits for 2018

Analyst says Google's hardware will produce nearly $3 billion in profits for 2018
Most tech firms put hardware first, and then dabble in services or advertising to balance the ups and downs of device sales. But Google, the Alphabet subsidiary, does it the other way around. The company's Google search engine is an advertising juggernaut as are its apps like Google Maps and YouTube. But Google's devices have "gained critical success and are starting to gain material commercial traction," according to RBC Capital Markets analyst Mark Mahaney. As noted by CNBC, the analyst wrote a note to clients late last week that is bullish on Google's hardware.

Mahaney expects hardware to contribute nearly $8.8 billion in revenue for Google this year, or 6% of the company's gross revenue. That would be a 65% gain year-over-year. While Pixel sales are expected to lead the way this year, beating out sales of the Google Home line by a thin margin, that is expected to change by next year. For 2019, Mahaney sees the smart speaker and display products outselling Pixel devices by over $2 billion. Still, Pixel branded products will continue to lead the hardware division in gross profits through 2021, the analyst predicts.

Google's hardware division, which includes the Pixel brand (phones, tablets and laptops), the Nest line (smart home devices) and Home products (smart speakers and smart displays), will gross nearly $3 billion in profits this year according to Mahaney. That is based on a gross profit margin of 34%, but accounts for only 4% of the company's gross profits. The exact estimate calls for a gross profit of $2.982 billion, or a 55% increase over the 2017 figure. RBC sees the growth dropping off so that by the time 2021 rolls around, gross profit will be up only 16% from the previous year.

Because Google's hardware allows it to serve more ads to consumers, it is an important part of the company. Still, most brokerage firms, including RBC, know what brings home the bacon for Google investors. For example, Morgan Stanley analysts recently said that Google should give away the Home Mini smart speakers for free to increase the number of ads it serves to consumers.

Financial projections for Google's hardware business from RBC Capital Markets analyst Mark Mahaney

Financial projections for Google's hardware business from RBC Capital Markets analyst Mark Mahaney

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10 Comments

1. Finalflash

Posts: 4062; Member since: Jul 23, 2013

They kind of deserve it. They are undisputed camera leaders and overall pixel experience is still great.

2. Atechguy0

Posts: 918; Member since: Aug 03, 2018

Well Google's Assistant is second to none. Which is why their Google Home stuff has been selling really well. Including their smart displays.

8. sissy246

Posts: 6907; Member since: Mar 04, 2015

Agree It is the best along with the camera.

10. Scott93274

Posts: 6025; Member since: Aug 06, 2013

Co-workers with brand new iPhones still marvel at the camera on my year old Pixel 2. lol They know their hardware. I really hope the market share for the Pixel goes up as the user experience for the Pixel is better than Samsung's Galaxy line, at least in my experience.

3. OneLove123

Posts: 658; Member since: Aug 28, 2018

Yep, the best camera in the business. I carry my pixel 3 and 3 xl everywhere

4. strategic_developer

Posts: 1627; Member since: Jul 17, 2018

You carry 2 identical phones at different sizes?

6. OneLove123

Posts: 658; Member since: Aug 28, 2018

I carry 6 phones with me at all times. Two note 9s, Iphone 8 plus, two pixel 3, and LG V40. 3 of them so my kids can watch YouTube kids. Plus, 3 lines are free so I don't mind carrying all these phones with me for vacations and etc.:)

9. sissy246

Posts: 6907; Member since: Mar 04, 2015

One could be a work phone. But my guess is he is full of s**t.

5. Awalker

Posts: 1957; Member since: Aug 15, 2013

I had the Pixel 2 and 2 XL last year. This year I went with the Pixel 3 and the OnePlus 6T.

7. kevin97

Posts: 90; Member since: Mar 01, 2016

That's why Wear OS sucks so bad: because Google can't serve ads via the smartwatches, so they force you to hate it and still use the phone instead.

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