Google’s public cloud has been chasing rival services from Amazon and Microsoft for so long, you’d think it would get out of breath. But Alphabet’s critical division continues to hold its own, announcing fourth-quarter revenue of more than $5.5 billion yesterday. That was the good news. The bad news is that Google Cloud incurred operating losses worth $890 million at the same time.
It can be hard to understand how a company with a run rate above $22 billion loses money, but CFO Ruth Porate explained it on the earnings call with analysts. It’s basically about spending money to make money, while competing against much more successful rivals. (She refers to Google Cloud simply as Cloud here.)
“While Cloud operating loss and operating margin improved in 2021, we plan to continue to invest aggressively in Cloud given the significant market opportunity we see. We remain focused on the longer-term path to profitability and over time, operating loss and operating margin should benefit from increased scale,” she said in a call transcript.
These investments are expensive and produce lumpy results. For example, while Google Cloud’s operating loss narrowed from the fourth quarter of 2020, when it was over $1 billion, the final quarter of 2021 saw the group lose more cash on an operational basis than in the previous quarter, when the figure fell to a more modest $644 million. Still a lot of money, but a smaller loss all the same.
It’s also worth remembering that while Google Cloud’s progress in revenue is impressive, the division still remains smaller than Alphabet’s other revenue streams. YouTube ads are a much bigger business, for example, with $8.6 billion in revenue in the fourth quarter. Unfortunately, since Alphabet isn’t blowing YouTube’s profitability, it’s hard to directly compare the two.
Are continuous losses a problem?
John DinsdaleChief analyst at Synergy Research, a firm that closely monitors the cloud industry market, says the loss is not cause for concern at this point.
“Google Cloud reporting a loss isn’t a big deal. Businesses of this nature require a lot of upfront investment and infrastructure building and often don’t break even for several years,” he said. he told TechCrunch, “AWS had suffered losses for many years and it was clear that it was making a conscious choice to reinvest the cash generated back into t