Google's cloud business lost over $ 5.5 billion last year
On Tuesday, Google's parent company, Alphabet Inc, beat quarterly sales forecasts for its advertising and cloud computing business, helped in part by the pandemic, and said it would resume heavy spending on hiring and constructing facilities. But more importantly, Google Cloud sales recorded an annual loss of nearly $ 5.6 billion last year. However, activity saw an almost 50% jump in revenue. (at $ 13.1 billion) compared to 2019.
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At $ 9.3 billion, the company's operating margin in the fourth quarter was also lower than the Wall Street consensus.
Google, which derives more revenue from internet advertising than any other business, has benefited from coronavirus containment measures that have pushed retailers and other customers to go online, which has helped offset cuts by travel advertisers and entertainment.
"Google's products and support have been a lifeline for millions of small and medium-sized businesses hit hard by the pandemic," Managing Director Sundar Pichai told analysts on a conference call. For her part, Google and Alphabet CFO Ruth Porat described the fourth quarter as "the great end of a difficult year."
Alphabet's 2020 sales growth of 13% was the weakest since 2009 when it posted 8.5% growth. According to financial results released Tuesday, Alphabet increased its cash flow by $ 17 billion in 2020 to $ 137 billion thanks to spending cuts.
Now that coronavirus vaccines are rolling out and ad spending is on the rise, Porat and other executives have said the company will start growing the Google Cloud business again with staff and data centers and integrating artificial intelligence into more services.
Helped by $3 billion in unrealized investment gains, Alphabet's fourth-quarter profit rose 43% to $15.2 billion, or $22.30 per share, beating estimates of 15. $95 per share. Google's advertising business, including YouTube, accounted for 81% of Alphabet's record quarterly revenue of $ 56.9 billion, up 23% from a year ago.
Google continues to rely heavily on the cloud computing business, and while it is experiencing accelerated revenue growth, its losses are also increasing. For the first time on Tuesday, Google disclosed the operating income/loss of its Google Cloud business unit in its quarterly results. Google Cloud lost $ 5.6 billion in Google's fiscal year 2020, which ended on December 31, about 21% more than the 2019 annual loss.
Although it may seem a bit disastrous at first glance, one can see the evolution over time of this activity in another way. On the one hand, losses are increasing from $4.3 billion in 2018 to $ 4.6 billion in 2019, but revenue is also growing strongly, from $5.8 billion in 2018 to $ 8 billion. $ 9 billion in 2019 and then to $13.1 billion in 2020, an increase of 46% compared to 2019. This corresponds to an investment drive sustained by Google in its Cloud Computing activity.
Google has long questioned whether it could turn the money from its advertising activities into a new profitable business. Pichai acknowledged that achieving this goal could take some time.
Analysts tracked by Refinitiv estimated quarterly revenue at $53.1 billion and cloud sales at $3.82 billion. Alphabet said it expects an increase of $2.1 billion in operating results in 2021 after a new assessment extended the useful life of its servers and networking equipment for one year or more.
Google's Cloud unit, led by CEO Thomas Kurian, includes all of its infrastructure and platform services in the cloud, as well as Google Workspace (commonly referred to as G Suite). And that's exactly where Google is investing a lot right now. After all, aren't data centers cheap? And Google Cloud has launched four new regions in 2020 and started working on others. This is in addition to its investments in its core services and several acquisitions.