Google Cloud Is Growing But Its Unclear How Profitably

It was in February 2018 that Google Cloud reached the $4 Billion mark. Just two years later it’s up to $8 billion.

Google Cloud was supposed to be the next big thing for Google but they aren’t even disclosing if it’s profitable. Needless to say, Google is likely even behind Alibaba, after AWS and Azure. AWS generates roughly five times more revenue per quarter than does Google Cloud.

Alphabet earnings said YouTube ad revenue in the first quarter reached $4.7 billion, while cloud sales came in at $2.6 billion. Those sound like incredible numbers but Alphabet is having trouble keep up with Apple, Microsoft and Amazon now.

Google is also not being transparent to investors about key metrics. The company broke those numbers out for the first time, but it’s still not disclosing profit figures for the units. Amazon started breaking out AWS revenue and profit in 2015. Alphabet is essentially hiding the key metrics that really matter about the growth of Google Cloud.

Alphabet likes to tout its own horn however, claiming the cloud business climbed 53% to $2.6 billion per quarter. The Cloud is big enough for a duopoly to become a 4-horse race with Amazon, Microsoft, Alibaba and Google in the years ahead.

Google is moving slow and hiding stuff. But at least they are showing what’s working. Google broke out numbers for YouTube and the cloud for the first time Monday. YouTube ads generated $15.15 billion in revenue in fiscal 2019, compared with $11.16 billion in 2018.

Alphabet isn’t providing profitability numbers and for an investor, that’s not a good sign. A glimpse into profits is critical for investors looking to gauge how much Google is spending on sales and marketing in order to play catch-up in the Cloud race.

With Alibaba, Baidu and Huawei likely accelerating their efforts in the cloud, Google will have to spend a lot to drive growth momentum, especially with how well Azure is doing and how mature AWS is.

I respect Thomas Kurian (pictured) as much as the next guy, but Google needs to leverage those Ad and YouTube profits to really try to be relevant in the Cloud and AI in healthcare broadly speaking, as their days at being #1 in Ads won’t last forever.

The reality is today shareholders always want more disclosures, but tech companies are so beloved by Wall Street at the moment that they thrive with minimal transparency. Google is a champion at this but it could have a rough 2020 by the looks of it, compared to its peers. The target growth Google Cloud has to hit to impress is just so absurdly high when you compare it with Microsoft Azure.

Google’s cloud is a key growth driver for Alphabet but it’s likely an expensive one as well. Alphabet as a whole is still doing fine with its ad-centric model. Revenue grew from $39.3 billion in 2018 to $46.1 billion in 2019. But its business model is still too Ad dependent. With the advent of Amazon, Alibaba and Snapchat, it could eventually be in trouble.

In terms of Ad revenue Google still has the monster lead of the share with 32%, followed by Facebook (21.1%), Alibaba (9%), Amazon (3.8%) and Baidu (2.9%). However upstarts like ByteDance, Snapchat, Twitter, Pinterest and a quickly rising Amazon could change Google’s fortunes, even with YouTube being so huge it should be a separate company that’s better regulated by the Government.

There’s little question that Facebook and Google acquisitions of apps wasn’t anti-competitive or that Android hasn’t abused its position to favor its own products. Google and Facebook are being probed and the results might not be pretty.

AWS has such a commanding lead in the cloud space compared with Alphabet. Amazon Web Services, the leader in cloud infrastructure, reported 37% growth on Thursday to $8.38 billion, which makes it about quadruple the size of Google’s business.

It’s nearly impossible for Google to replicate the recent growth of Azure as well. Google doesn’t execute that well outside of digital Ads and even its AI talent pool isn’t that profitable yet.

In short, Alphabet has a lot to prove.

Alphabet shares are up 33% in the past year, however more of Alphabet’s products fail than Amazon’s or Microsoft’s. Google is just not a sure bet anymore in a more competitive technological landscape. The Cloud wars are just beginning. Can Google Cloud make the “A” grade? I give them a solid B+ at the Last Futurist.

Cloud is a key driver for Alphabet, which is chasing after competitors Amazon and Microsoft. But let’s face it, they are very late to the party and not a disruptive company in the cloud computing landscape. Ad firms like Facebook and Google have long been too dependent upon their core businesses, but as the future of search and apps changes, newer companies like Amazon and ByteDance could disrupt them.

Microsoft, the No. 2 player, said last week that Azure grew 64%. This makes Google’s entry into the cloud look a bit weak. The lack of transparency in the revenue also turned shareholders off. Alphabet is many things but being a transparent leader is not among them.

They bought $7 billion of stock back. But this is not likely a Cloud winner in the future.

Those 20% margins are a lot better than a lot of advertising agencies but not many of their “other bets” are likely to work out. Waymo, possibly. Stadia looks like a dud.

YouTube ads generated $15.15 billion in revenue in fiscal 2019, with $4.72 billion in the fourth quarter alone. In October 2006, Google announced that it had acquired the video-sharing site YouTube for $1.65 billion. That was lucky, but Google will need more than luck to make it in the ultra competitive cloud computing landscape.