Cloud computing again lifts Amazon, but Alphabet earnings fall short
Among the countless disruptions ripping across information technology, cloud computing stood out last year, and with the new year underway, its impact is only accelerating. That’s apparent once again today in earnings reports from Google LLC parent Alphabet Inc. and Amazon.com Inc.
The two big As in tech – along with another, China’s Alibaba Group Holding Ltd. – all indicated today that cloud computing services continue to boom as more large enterprises buy into the lower cost and greater flexibility of treating their information technology as a utility. Microsoft Corp. also said yesterday that its cloud revenues nearly doubled. Those four companies are by most estimates the world’s largest providers of cloud computing, which enables companies to ditch their own data centers and rent out a wide variety of computing services.
Alphabet’s shares, which closed down a small fraction, to $1,181.59, on regular trading, initially plunged more than 4 percent in after-hours trading as it missed earnings estimates, before later recovering somewhat. But Amazon’s shares rose more than 6 percent in extended trading after it beat estimates. The stock had closed down more than 4 percent, to $1,390, during the regular session.
Alphabet reported an operating profit of $7.7 billion, or $9.70 a share, on a 24 percent rise in revenue from a year ago, to $32.3 billion. Analysts polled by Thomson Reuters had reckoned a net profit of $9.98 a share on revenue of $31.86 billion. Like other big tech companies, Google had to pay a big tax bill on repatriated overseas profits, which resulted in a net loss of $3 billion or $4.35 a share.
On Alphabet’s earnings conference call, Chief Financial Officer Ruth Porat noted higher marketing expenses for Google hardware and other operations in the holiday quarter. Google also paid more for traffic from web search partners, up 33 percent from a year ago, to $6.45 billion. And there were issues with some advertisers avoiding YouTube because some ads appeared next to unsavory videos.
The big losses of about a billion dollars a quarter continued to come from Alphabet’s so-called “Other bets” such as the Nest home products unit, the Waymo self-driving car fleet company and other leading-edge initiatives. But Porat also said the rise in headcount of about 2,000 people from the third quarter, to 80,110, was led by the cloud unit.
Amazon fared better, earning a net profit $1.9 billion, or $3.75 a share, on a 38 percent jump in revenue, to $60.5 billion. Analysts had forecast a profit of $1.85 a share on revenue of $59.83 billion, which included a full quarter of Whole Foods from its acquisition of the grocery chain last year. However, Amazon benefited from a tax benefit of $789 million related to the new tax overhaul, which analysts might not have factored in.
Once again, Amazon Web Services Inc., the retail giant’s cloud unit, starred on the profit front. AWS earned an operating profit of $1.4 billion on a 45 percent leap in revenue, to $5.1 billion, putting it at a $20 billion annual run rate. Analysts had expected a rise of 41 percent, to $4.87 billion. AWS introduced a raft of new products in the quarter during its annual re:Invent conference.
Cloud revenue is still a small part of Alphabet’s overall revenue. But it’s the majority of Alphabet’s “Google other,” which also includes hardware such as its Pixel phones and Google Home smart speakers as well as revenue from its Android app store. Overall, that revenue clocked in at $4.7 billion, up 38 percent from a year ago.
Billion-dollar quarter
Google Chief Executive Sundar Pichai shed more light on the cloud unit, which includes its GSuite productivity software as well as infrastructure-as-a-service. He said it is now a billion-dollar-a-quarter business that’s growing faster than any other major cloud provider, though that’s from a much smaller base well behind AWS and Microsoft Azure. GSuite also has some 4 million paying customers, he said.
“We are making big strides on our biggest bets,” Pichai said.
Charles King, president and principal analyst at Pund-IT Inc., agreed. “Alphabet offered mostly good news when it came to the company cloud-related platform and solutions,” he said. Despite the uptick in marketing costs, he said, “Alphabet’s longer-term prospects remain bright.”
Alphabet’s “Other Bets,” which include self-driving car firm Waymo, Google Fiber, the Nest home devices unit and other businesses, logged an operating loss of $1.1 billion on revenue of just $262 million. Analysts had figured an operating loss of $940 million on revenue of $355 million.
The cloud operations have widely divergent impacts on each company, however. In Alphabet’s case, it seems likely the operation is fully in spending mode on everything from data centers and technology development to a growing sales force, so if it were broken out, it’s hard to imagine it would be generating a net profit.
But for Amazon, cloud is the cash cow, consistently not only profitable but lucrative enough to make up for losses in Amazon’s entire e-commerce business, with international operations continuing to lose money.
Photo: Michael Brown/Flickr
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