Wiz deal could help Alphabet nail down the cloud
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, July 15 (Reuters Breakingviews) -Alphabet’s GOOGL.O mooted acquisition of cybersecurity firm Wiz is expensive, aggressive, will irritate powerful foes, and – despite that – looks like a good idea.
The parent of Google may buy fast-growing Israeli startup Wiz for an eye-popping $23 billion, the Wall Street Journal reported over the weekend. That would be the biggest acquisition the company has made so far, about the same size as the possible deal with marketing software firm HubSpot HUBS.N that Alphabet abandoned recently.
Wiz ticks several boxes – bad as well as good. For one, it’s expensive. Wiz had annual recurring revenue of $350 million last year, Reuters has reported. That was roughly triple what it made in 2022. If it can double revenue this year, the reported purchase price would be 33 times sales. Rival Datadog DDOG.O meanwhile is valued at some 13 times this year’s annual recurring revenue, according to LSEG. Any deal of this size is sure to draw government scrutiny too. Alphabet is already battling the Department of Justice on two fronts, over its dominance in search and advertising.
Those risks are worth taking for CEO Sundar Pichai. Google lags peers in its cloud offering with about 10% of the market share. Amazon.com AMZN.O is at 26% and Microsoft MSFT.O is at 31%, according to data from Canalys. One way to catch up is to bolster its safety credentials. Microsoft, which has $20 billion in cybersecurity revenue according to estimates from TD Cowen, has been under fire for its lapses in safeguarding information. The U.S. government alleges the Redmond, Washington giant allowed for Chinese hackers to steal data that could have been prevented. Telecoms provider AT&T last week disclosed a massive hack.
Cloud is still a small part of Google’s revenue – around 12% percent this year, according to LSEG estimates. But it is growing roughly twice as fast as the rest, rapidly increasing its contribution to Pichai's empire. That’s a prize worth defending, even if some feathers – meaning regulators but also investors – get ruffled along the way.
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CONTEXT NEWS
Alphabet, the parent of Google, is mulling an acquisition of cybersecurity firm Wiz for $23 billion, Reuters reported on July 14, citing a person familiar with the matter. The deal, first reported by the Wall Street Journal, would represent Alphabet’s largest.
Wiz is a privately held startup that in May raised $1 billion from Andreessen Horowitz, Lightspeed Venture Partners, and Thrive Capital at a valuation of $12 billion.
Editing by John Foley, Sharon Lam and Pranav Kiran
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