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Morningstar | Looking to Broaden Its Cloud Offering, Google Acquiring Looker for $2.6 Billion

Alphabet's Google will be enhancing its Google Cloud by acquiring Looker, a Big Data and business intelligence software firm, for $2.6 billion in cash. While the addition of Looker goes along with Google's strategy of helping current or potential clients implement their systems on multiple clouds, we think Google will benefit mainly from Looker's data visualization capabilities. This acquisition may increase Google's chances of pitching for and winning additional cloud clients. However, additional revenue generated from the Looker and Google Cloud combination likely will not affect our estimates significantly. We did not make any adjustments to our model and are maintaining our $1,300 fair value estimate per share on Google's parent, Alphabet. We view Alphabet shares attractive, as they are trading in 4-star territory and at a 20% discount to our fair value estimate. As mentioned in our June 5 note, we think various regulatory risks are priced into the stock.

Founded in 2011, Looker is a software firm providing the front- and back-end data analytics capabilities. While Google will also be marketing and selling Looker's offerings separately, the integration of Looker and Google Cloud likely will be an easy one, as the two have already integrated many of their technologies, including Google's data warehouse machine learning (BigQuery ML) and the Looker Blocks (Looker's own version of online analytical processing, or OLAP, data cubes). On the back end, Looker can access, and query multiple data sources directly and can tap into data warehouses such as Google's BigQuery or Microsoft's SQL Data Warehouse. Looker also provides various features that enhance overall data management whether on Google Cloud or other cloud providers.

On the front end, Looker helps users or firms conduct data analytics and present results via data visualization features. Looker's data visualization capabilities may strengthen Google’s pitch as to how and why its various Google Cloud offerings may provide ROI for enterprise clients, possibly resulting in more client wins. The addition of Looker may also help attract more enterprise software sales talent, which may further drive Google Cloud sales closing and revenue growth. In our view, Thomas Kurian, Google Cloud's new CEO and an Oracle veteran, likely views ROI of this acquisition similarly. Last, the addition of Looker supports Google's claim that its cloud offering is open and remains very customizable, given that more enterprises are pursuing the multicloud and/or hybrid-cloud strategy.

According to PitchBook, Looker last raised $103 million in its Series E funding (in which Google's CapitalG was a participant), which implied a $1.6 billion valuation. CapitalG was also an investor in Looker's March 2017 Series D funding of $81.5 million. Based on PitchBook data, it also appears that Looker generated about $100 million in 2018 after which its CEO, Frank Bien, said revenue can grow at least 70% in 2019. Google's acquisition of Looker represents 26 times and 15 times 2018 and 2019 revenue, respectively. While some of Looker's public company peers, such as Tableau, are trading at 10 times and 7 times 2018 and 2019 sales, respectively, Looker remains in its very early growth stage. For example, while Tableau revenue grew 32% last year and is expected to grow 19% in 2019 (based on consensus), Looker's more than doubled in 2018 and likely will go up over 70% this year.