Google (NasdaqGS: $GOOGL) has become fully engrained in our everyday lives. Every question you can think of is now at your finger tips via google search. Over the past few years, the company’s smart home products have expanded exponentially. Google TV, nest hubs, thermostats, cameras, and alarms to mention a few. Oh, and full disclosure, I cannot forget to say thanks to google search for all of those bets I have instantly won off my friends, it’s been a pleasure.
In terms of revenue, the company has absolutely been crushing it with a 19% CAGR over the past five years. Year end 2020 amounted to $183B in revenue. Incredible growth considering billions, not millions.
The most significant contributor to the growth in revenue has been due to Google services, which accounts for 92% of Alphabet’s revenue. The overall services category includes many recognizable platforms such as Android, Chrome, Gmail, Google Maps, Google Photos, Google Play, Search, and YouTube. Across the platforms, the primary revenue driver is related to web advertising where companies pay for engagement of the user through impressions or clicks.
Aside from the views or clicks, a long term growth avenue for Google services is the smart home market and hardware devices. Although revenue is not broken out by product from Google, the smart home market is still just getting started.
Google’s Smart Home Potential in Nest
Flashback to January 2014, Google purchased Nest for $3.4B. Nest was a key purchase for Google. The company has taken the Nest brand name and made it the brand of all of their smart home devices in the Google store.
For reference, the global smart home market in 2013 was only $4.4B. Now as of today, the smart home market is expected to double again from 2021-2025 to reach $46B just in the United States alone. The global market is predicted to be $135.3B in 2025 with the United States being a significant contributor.
With the overall TAM market predictions continuing to grow, that means more home devices will become electrified in the 2020’s. In other words, more opportunity for Google products.
Once you are locked into Google smart home devices, it makes the case there will be more opportunity for Google to take advantage of its customers through its ad networks. Do you see where I am going? There will be even more opportunity to fuel further ad revenue, new subscription services, and overall consumer engagement with the Google brand.
I view Google as small today when you compare it the total addressable market potential for smart home devices.
At the time of publication, the author of this article does not hold shares of GOOGL.