Alphabet earnings show Google Cloud on $10B run rate

Today after the bell, Alphabet reported its fourth-quarter and full-year financial results. The company’s revenue grew from $39.3 billion in 2018 to $46.1 billion in 2019. The firm’s net income also expanded from $8.9 billion to $10.7 billion over the same time frame.

The figures, when compared to expectations, were mixed. Alphabet beat analyst estimates on profit, but missed on revenue. Shares of the company are off around 4% in after-hours trading, following its disclosure.

Why do we care?

The company’s reported Q4 and full-year 2019 results are notable for several reasons. First, Alphabet broke out the value of YouTube’s advertising empire. And, the company disclosed discrete “Google Cloud” revenues. Both are new.

YouTube’s advertising heft was made clear today, with the video platform bringing in $15.1 billion in 2019 revenue, up from $11.2 billion in 2018.

The firm’s new “Google Cloud” line item appears to include all of the company’s cloud computing efforts. YouTube’s advertising haul will grab the most headlines, but the cloud revenue figure is what we’d like to drill into.

Cloud, Google-style

Google announced an impressive $2.6 billion round for all cloud revenue, which includes G Suite, the enterprise version of GMail/Docs/Drive/Hangouts and Google’s cloud infrastructure revenue. At $2.61 billion, that puts it on a run rate over $10 billion. In the year-ago Q4, the company’s Cloud revenue came to just $1.71 billion, a run rate of $6.84 billion.

Google’s Cloud run-rate, then, grew by 53.6% in the last year.

In February of 2018, then-Google Cloud CEO Diane Greene was happy to report $1 billion quarterly revenue for the group. Last July, the company’s Cloud revenue crossed $2 billion for that quarter, putting on an $8 billion run rate, double the previous report.

Former Oracle executive Thomas Kurian took over after Greene stepped down last year, and he brought on a number of industry veterans from Oracle and SAP to help sell Google Cloud to the enterprise. So far the results are certainly encouraging in a short amount of time.

In comparison

While Google is making some gains in the cloud, its chief competitors have been doing well at the same time.

To pick one example, Amazon’s cloud revenue totaled just under $10 billion in the same calendar quarter. In a direct comparison, Google is far smaller, but the search giant is working to make up ground and the results appear encouraging. It’s worth noting that Amazon’s comparable cloud figures are more focused on infrastructure than Google’s, which includes SaaS revenue, as well.

Turning to Microsoft, it reported a combined cloud revenue, which includes SaaS (Office 365, Dynamics, etc.) and cloud computing (Azure), of $12.5 billion for the quarter. All of this shows that while Google still has a long way to grow to match its rivals for scale, it’s at least picking up the pace.