Google Cloud may be chasing after Amazon and Microsoft in the cloud game, but it has something big to brag about after earnings came out today. The company is profitable on its cloud unit for the first time since it began reporting cloud income several years ago.
The company reported cloud revenue of $7.4 billion in the first quarter of 2020, up 27.5% from $5.8 billion in the year-ago period. But this growth isn’t the biggest news here. The company also reported a loss in operating income of $706 million a year ago. This year it recorded a gain of $191 million. That’s huge for a company that has struggled for third place in the cloud market.
However, even as Google Cloud revenue grew 27.5% this quarter, that growth is slowing from 32% last quarter and 38% before that. Cloud spending in general is slowing as companies look more carefully at their cloud spending and cut back as much as possible.
Ray Wang founder and principal analyst at Constellation Research says it shows how long it takes to get to this point in this market. “It’s a significant achievement for Google Cloud, which started in April 2008. Fifteen years later, it’s now profitable. Wang shows how difficult it is for new players to enter the space and what is required to achieve escape velocity for cloud adoption.”
Slowing growth dampens profitability news, says Max Wellens, senior analyst at Insider Intelligence. “A profitable cloud segment is notable, and a testament to management’s diligence in steering Cloud toward profitability. But the reality is that Google Cloud is still comfortably behind its top competitor, and its growth is slowing.”
It should be noted that Google Cloud includes both Infrastructure and Platform as Pieces of Service – which compete directly with Amazon Web Services and Microsoft Azure – along with Google Workspace, a productivity software package that includes GMail for Business, Docs, Calendar, etc.
So that combined income means it’s not exactly compared to its competitors, but it’s still significant, especially when you consider that the company reported a whopping $5.6 billion loss in the cloud unit in 2020. That’s quite a turnaround in just three years.
Even with its positive quarter announcement, the company laid off 12,000 people in January. It also reported that it had bought back $70 billion in shares. Meanwhile, CNBC reported that Alphabet CEO Sundar Pichai offered total compensation of $226 million last year.