Google has invested heavily in cloud computing to compete with Amazon and Microsoft. Huge investments are paying off.
On Tuesday, Alphabet announced that, after three years of reporting financial results, Google’s cloud business has turned a profit.
Google Cloud Platform’s Services
On $7.45 billion in revenue during the first quarter, the segment earned $191 million in operating income, according to Alphabet’s earnings statement. Results from the same quarter last year showed a loss of $706 million on sales of $5.82 billion. The Google Cloud Platform and Google Workspace subscriptions for productivity software make up the cloud business.
The Google Cloud Platform rents out cloud infrastructure and services that companies can use to create and run their own applications. Currently, 10% of Alphabet’s overall revenue comes from the company. Customers of the Cloud include UPS, Major League Baseball, PayPal, and Deutsche Bank.
Google has been vying for the business of large corporations and government agencies as they transition from traditional data centers to the cloud and rely on more compute-intensive applications involving artificial intelligence.
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Improved Metric for Distribution of Developer Tools
Amazon Web Services, the market leader in cloud infrastructure, popularized the industry in the middle of the 2000s and has been profitable every quarter since 2014. Microsoft, the second-largest player in the market, does not disclose Azure’s profitability.
In 2021, Alphabet began disclosing the magnitude of its operating losses. In 2020, the company began disclosing cloud revenue.
Last week, Alphabet revised its cloud and other segments’ operating income, resulting in reduced cloud losses in 2021 and 2022. The restated numbers reveal that the cloud unit’s operating loss for the fourth quarter was $186 million, compared to $480 million before the change, for example.
After previously being reflected in unallocated corporate costs, “certain costs associated with corporate initiatives supporting consumer-facing activities” have been “allocated to Google Services,” as stated by Alphabet in a regulatory filing.
Our shared developer tools and other centrally managed R&D activities are now distributed according to an improved metric of the relative value of the services provided.
“As a result of these adjustments, a greater proportion of previously unallocated corporate costs have been allocated to our segments, and a greater proportion of certain previously allocated costs have been assigned to our consumer-facing Google Services products and less to our Google Cloud enterprise products,” the company explained.
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