- Alphabet broke out Google Cloud as a seperate unit on its earnings for the first time.
- It generated over $13 billion in annual revenue and $3.8 billion in Q4 revenue.
- Google Cloud is not yet profitable, losing $1.2 billion in Q4 and $5.6 billion annually in 2020.
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Google Cloud crossed a major milestone Tuesday as parent company Alphabet broke out the unit’s earnings for the first time.
Google Cloud generated $13 billion in annual revenue in 2020, surpassing the $10 billion that Google CEO Sundar Pichai projected last year as the coronavirus pandemic pressured companies to increasingly move to the cloud. Google Cloud’s revenue increased by 46% from 2019, when it generated $8.9 billion in revenue.
Google Cloud’s growth also accelerated slightly from the previous quarter. It generated $3.8 billion in revenue in the fourth quarter, representing a 47% increase from the same time the year before, a bit higher than its 45% year-over-year increase in Q3.
“We are definitely investing ahead to making sure we are able to serve the customers globally across all the offerings they are interested in, and that’s how we are thinking about it,” Google CEO Sundar Pichai said on Tuesday’s earnings call.
However, the unit is not profitable: It reported a loss of $1.2 billion in the fourth quarter and $5.6 billion annually. The company has been investing heavily in hiring and building out data centers, it said.
Google CFO Ruth Porat said on the earnings call that this loss means that Google has fully built out its cloud organization to ramp it up for generating revenue in the future and that it’s focused on “delivering on efficiency efforts across the board to contribute incrementally to profitability over time.” She also pointed out that the losses were higher in the Q1 of 2020 and that the company expects similar patterns this year.
Google plans to make “disciplined investments” in cloud
Google has been investing heavily in its cloud business “given the momentum we are seeing,” Pichai said. On the call, he announced Google Cloud closed several billion dollar deals in 2020, while deals over $250 million more than tripled.
Google Cloud has also been investing in its partner network, as its channel partner ecosystem has grown over five times, while indirect channel revenue more than doubled in the past two years, Pichai said on the call.
In addition, Google’s backlog grew from $19 billion to nearly $30 billion between the third and fourth quarters of cloud, which is “nearly all attributable to cloud,” Porat said. Backlog can show that a company is seeing rising sales, although Google Cloud will need to meet this demand.
“Although increases in backlog do not directly correlate to revenue trends, the growth in backlog demonstrates the success Google Cloud is having with large enterprises, which are signing meaningful long-term commitment agreements,” Porat said on the call.
Google Cloud plans to continue investing in technical and sales roles and that it’s on track for tripling its salesforce, Porat said. In addition, it’s also building out data centers around the world.
“We’ll continue making disciplined investments to scale the business and improve profitability,” Pichai said.
Google broke out Google Cloud as a separate reporting segment for the first time
Google had announced last quarter that it would start breaking out Google Cloud as a separate reporting segment in its earnings reports, showing how the company sees a major opportunity in its cloud business and shedding light on Google Cloud’s investments and operating income.
It also reported annual revenue and operating income going back to 2018. In 2018, Google Cloud generated $5.8 billion in revenue, meaning that Google Cloud has more than doubled its revenue in the past two years.
While the firm has made impressive revenue gains, though under the leadership of CEO (and long-time Oracle vet) Thomas Kurian, it still lags behind rivals Amazon Web Services and Microsoft in terms of market share.
Under his leadership, Google Cloud has been investing in hiring executives and salespeople to target specific industries like manufacturing, telecommunications, retail, and finance. It has gone on a hiring spree — poaching leadership from companies like SAP — and doubled-down on a hybrid and multi-cloud strategy. Meaning, it is building products that allow customers to run their software not only on Google Cloud, but also private data centers and even rival clouds like AWS and Microsoft.
Kurian has also led the company in making several acquisitions, and analysts expect that Google Cloud will continue shopping, particularly as Salesforce’s acquisition of Slack adds fiercer competition to Google’s Workspace office suite.
In December, Google Cloud announced it would acquire Actifio, an Andreessen Horowitz-funded data backup startup last valued at $1.3 billion.
Do you work at Google Cloud? Got a tip? Contact this reporter via email at rmchan@insider.com, Signal at 646.376.6106, Telegram at @rosaliechan, or Twitter DM at @rosaliechan17. (PR pitches by email only, please.)
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