Google Cloud Loss: $5.6 Billion in 2020

Google Cloud's Financial Performance and Investment Strategy

Google is demonstrating a significant commitment to Google Cloud, evidenced by accelerating revenue gains. However, alongside this growth, the company is also experiencing increasing financial losses within this sector.

First-Time Disclosure of Cloud Unit Finances

For the first time, Google has revealed the operating income and loss figures specifically for its Google Cloud business during its recent quarterly earnings report. The cloud division incurred a loss of $5.6 billion throughout the fiscal year 2020, concluding on December 31st.

Revenue Growth Alongside Mounting Losses

Despite the substantial losses, it’s important to consider the context. While losses have risen from $4.3 billion in 2018 and $4.6 billion in 2019, revenue has also experienced considerable expansion. Revenue climbed from $5.8 billion in 2018 to $8.9 billion in 2019, and ultimately reached $13 billion in 2020.

This situation primarily reflects Google’s substantial investments in its cloud infrastructure and services.

Investments in Infrastructure and Services

Led by CEO Thomas Kurian, Google’s Cloud unit encompasses all cloud infrastructure and platform services, alongside Google Workspace (formerly known as G Suite). A considerable portion of Google’s current investment is directed towards this area.

Establishing data centers requires significant capital expenditure. In 2020, Google Cloud launched four new regions and initiated development on additional ones, supplementing investments in core services and strategic acquisitions.

CEO Pichai on Long-Term Growth

During the earnings call, Google/Alphabet CEO Sundar Pichai emphasized the early stage of cloud adoption among customers. He stated, “We see a large time ahead — and definitely the market dynamics and our momentum in the context of the market is the framework in which we are thinking about the scale of investments — and the pace of investments.”

Pichai further noted the benefits of scale and the increasing contributions as the company gains experience in the cloud market.

Financial Performance Overview

Ruth Porat, CFO of Google and Alphabet, highlighted the strong fourth-quarter performance, with revenues reaching $56.9 billion, driven by growth in Search and YouTube. Google Cloud revenues totaled $13.1 billion for 2020, demonstrating continued positive momentum.

Growth in Google Workspace

Porat also pointed out the robust growth of Google Workspace among large enterprises, noting that these organizations are entering into significant, long-term agreements.

Advertising Revenue Subsidizing Cloud Expansion

Currently, Google’s primary business, which experienced a strong recovery in advertising revenue during the last quarter, is funding the expansion of its cloud operations.

AWS Performance Comparison

In contrast, Amazon Web Services (AWS) reported revenue of $12.74 billion solely for the last quarter, alongside an operating income of $3.56 billion. For the entirety of 2020, AWS achieved an operating income of $13.5 billion.