Google parent company Alphabet weathered the tail end of 2020 to post better-than-expected earnings for the fourth quarter of the year. But the bigger story is that Alphabet broke out Google Cloud’s sales for the first time ever, revealing an eye-popping $5.6 billion annual loss last year, but a nearly 50 percent jump in revenue (to $13 billion) compared to 2019. And Google Cloud maintained that growth well into the fourth quarter, when the division generated $3.8 billion in sales. That’s a 46 percent jump from the fourth quarter of 2019.
Those numbers are notable for a few reasons: Google Cloud lags behind the competition, in particular Microsoft’s Azure platform and Amazon’s dominant Amazon Web Services, the CEO of which was just promoted to run the entirety of Amazon now that co-founder Jeff Bezos is stepping back into an executive chairman role in a surprise announcement this afternoon. But the division’s fast-growing revenues, second only to the search giant’s core ad business, suggest Google could become a major cloud player and fiercer competitor to Azure and AWS in the years to come.
The message is now clear: cloud computing is the dominant business for these major tech titans, and the execs who can excel in the cloud industry are stepping in to take the reins of the entire business. Microsoft CEO Satya Nadella famously ran Azure before he took over for Steve Ballmer, and Google Cloud chief Thomas Kurian was a top exec at Oracle before replacing VMWare co-founder Diane Green in the top Google Cloud role. These are the people running the show at the most important divisions of the most important tech companies, until they get promoted to steer the entire ship apparently.
In many ways, Google’s cloud business is going through the same growing pains its competitors once did; it took AWS nearly 10 years to become profitable for the first time, and it’s now a more than $45 billion annual business. But Google is facing an uphill battle, one that will take a considerable time and financial investment to come to fruition.
Thankfully, Alphabet is not dependent on Google’s cloud business, as Amazon relies on AWS, to make considerable profit every quarter, thanks to Google’s dominant ad business that brought in a staggering $52.9 billion in revenue last quarter alone and nearly $170 billion for the year.
The Google Services division’s profit margins there are immense — Google made more than $19 billion in net income for the fourth quarter of 2020, a 41 percent increase from the fourth quarter of 2019. YouTube also continues to grow at a steady clip. The video site posted more than $6.8 billion in revenue last quarter, a 47 percent increase from the fourth quarter of 2019.
The always fluctuating Other Bets division — which includes Alphabet’s X lab, Waymo, and other non-Google companies — took in $196 million last quarter and $657 million in all of 2020, but it also posted an operating loss of $4.48 billion for the year.