Google (GOOG, Financial) relies heavily on its advertising business, which accounts for nearly 80% of its revenue. However, expanding its cloud computing segment has been a key growth strategy for years. Now, GOOG is considering acquiring cybersecurity company Wiz for $23 billion to compete with cloud giants Microsoft (MSFT, Financial) and Amazon (AMZN, Financial). Wiz provides a platform that identifies security threats within cloud infrastructure, and discussions for a deal are reportedly underway.
- GOOG has previously turned to acquisitions to bolster its Cloud segment:
- In September 2022, GOOG completed a $5.4 billion acquisition of Mandiant, enhancing its cyber defense, threat intelligence, and incident response capabilities.
- During GOOG's Q1 earnings call, CEO Sundar Pichai stated that the Cloud business is now seen as a leader in cybersecurity.
- Pichai added that enterprises are integrating GOOG's AI technology, like Gemini, with its cybersecurity tools for more effective threat detection.
- Acquiring Wiz, headquartered in New York City but founded in Israel, would add a leading unified cloud security platform that integrates with Amazon Web Services and Microsoft Azure. This aligns with GOOG's aim to meet the rising demand for cloud storage and security tools amid the AI boom.
- The $23 billion valuation for Wiz is striking. With annual recurring revenue of about $500 million, GOOG would be paying roughly 45 times recurring revenue. Wiz raised $1 billion at a $12 billion valuation earlier this year, and its annual recurring revenue has grown by 43% since the end of 2023, but the valuation remains steep.
- Regulatory concerns are also significant. GOOG's search and advertising businesses already face antitrust lawsuits from the U.S. Justice Department. Regulators may not be pleased with GOOG making a large acquisition to strengthen its Cloud segment.
The potential acquisition of Wiz could help GOOG close the gap on Azure and AWS, providing a major growth catalyst. However, regulatory uncertainties and the high price tag could weigh on the stock.
