With an execution rate of $22 billion, does it matter if Google Cloud is still losing money? – Techdoxx

Deepak Gupta
Deepak Gupta February 3, 2022
Updated 2022/02/03 at 2:10 AM

google public cloud has been chasing competing services from Amazon and Microsoft for so long, you might think you’d be out of breath. But the critical division of the alphabet continues, yesterday revenue reports of more than $5.5 billion for the fourth quarter. That was the good news. The bad news was that Google Cloud racked up operational losses worth $890 million at the same time.

It can be difficult to understand how a company with an execution rate of more than $22 billion is losing money, but CFO Ruth Porate explained this in the earnings call with analysts. Basically, it’s all about spending money to make money, while competing with your 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 aggressively invest in the cloud given the massive market opportunity we see. We remain focused on the long-term path to profitability and, over time, operating loss and operating margin should benefit from increased scale,” she said. by call transcript.

These investments are expensive and produce uneven profit results. For example, while Google Cloud’s operational loss has decreased from 4th quarter of 2020 when it was over $1 billion, the last quarter of 2021 saw the group lose more money on an operating basis than last year. sequentially previous quarter, when the figure dropped 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 Google Cloud has made in terms of revenue is impressive, the split still remains smaller than other Alphabet revenues. YouTube ads are a much bigger business, for example, with $8.6 billion in fourth-quarter revenue. Unfortunately, since Alphabet doesn’t disclose YouTube’s profitability, it’s difficult to directly compare the two.

Are ongoing losses a problem?

John Dinsdalechief analyst at synergy searcha company that closely follows the cloud industry market says the loss is not worrisome at this stage.

“Google Cloud reporting a loss is no big deal. Businesses of this nature require a lot of upfront investment and infrastructure construction and often don’t break even for several years,” he told Ploonge. “AWS has been at a loss for many years and it was very clear that it was making a conscious choice to reinvest the money being generated in investments in t

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