Google’s public cloud has been chasing competing services from Amazon and Microsoft for so long, you might think it would be getting winded. But the critical Alphabet division keeps on keeping on, yesterday reporting revenues of more than $5.5 billion for the fourth quarter. That was the good news. The bad news was that Google Cloud accrued operating losses worth $890 million at the same time.
It may be hard to understand how a business with a run rate greater than $22 billion is losing money, but chief financial officer Ruth Porate explained it in the earnings call with analysts. It basically comes down to spending money to make money, while also competing with its much more successful rivals. (She refers to Google Cloud as simply Cloud here.)
“While Cloud operating loss and operating margin improved in 2021, we plan to continue to invest aggressively in Cloud given the sizable market opportunity we see. We do remain focused on the longer-term path to profitability and over time, operating loss and operating margin should benefit from increased scale,” she said per a call transcript.
Those investments are expensive and produce lumpy profit results. For example, while Google Cloud’s operating loss narrowed from Q4 2020 when it was over $1 billion, the final quarter of 2021 saw the group lose more money on an operating basis than it did in the sequentially preceding quarter, when the figure had declined 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 the progress that Google Cloud has made in revenue terms is impressive, the division still remains smaller than other Alphabet incomes. YouTube ads is a far larger business, for example, with $8.6 billion in Q4 revenues. Sadly, as Alphabet doesn’t break out YouTube profitability, it’s hard to directly compare the two.
Are ongoing losses an issue?
John Dinsdale, chief analyst at Synergy Research, a firm that keeps close tabs on the cloud industry market, says the loss isn’t worrisome at this stage.
“Google Cloud reporting a loss is not a big deal at all. Businesses of this nature require a lot of upfront investment and buildout of infrastructure and often don’t break even for several years,” he told TechCrunch.. “AWS made a loss for many years and was quite clear that it was making a conscious choice to plow cash being generated back into investing in t