Alphabet Inc. revealed the operating income metric for its cloud business for the first time, in which its Google Cloud business had an operating loss of $1.24 billion in the Q4 of 2020, a new disclosure that may disappoint some Wall Street analysts.
The Mountain View, California-based tech giant revealed the numbers on Tuesday in a statement. For 2020, the cloud division lost $5.61 billion on $13.06 billion in revenue for the year, Alphabet said.
“An important element of our operating loss is that we have been building out our organization ahead of revenue, and that includes our product portfolio, the network of data centers,” said Ruth Porat, the chief financial officer of Alphabet and Google, according to Bloomberg. She further informed that this will help the company pursue this large market opportunity.
As Google Cloud Chief Executive Officer Thomas Kurian is trying to catch Amazon and Microsoft Corp, the company invests heavily in sales staff, and the unit’s losses appear to be growing. According to a report by CNBC, the company said that “the cloud unit lost $4.65 billion on $8.92 billion in revenue in 2019, and lost $4.35 billion on $5.84 billion in revenue in 2018.”
According to data compiled by Bloomberg, Google Cloud revenue climbed 47% to $3.83 billion in the Q4 of 2020, matching analysts’ estimates.
Brian Fitzgerald was looking for Google Cloud to generate an operating margin of less than 20% in the Q4 of 2020. The analyst at Wells Fargo & Co. estimated roughly $750 million in profit on revenue of $3.75 billion.
American Investment bank Morgan Stanley’s Brian Nowak estimated Google Cloud to make about $3 billion last year, before interest, taxes, depreciation, and amortization (EBITDA).
The results are way behind Amazon, which runs the largest cloud provider, Amazon Web Services. That business generated Q4 2020 operating income of $3.56 billion on revenue of $12.7 billion.
Some analysts anticipate profitability to arise as the division matures. Nowak sees Google Cloud’s EBITDA reaching $13 billion by 2024 on revenue of $35 billion.