The Six Five team dives into the Google Cloud quarterly performance.
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Transcript:
Daniel Newman: But let’s talk about Google Cloud and let’s talk about AWS Cloud, let’s start with Google.
Patrick Moorhead: Yeah, so let me flash this screen up here.
Daniel Newman: By the way, you’re so good at this production stuff, man.
Patrick Moorhead: Listen, if this analyst thing, if I crash and burn on that, maybe I can do …
Daniel Newman: You can produce the show for me.
Patrick Moorhead: Exactly, yeah. I’d love to be your handmaiden. So yeah, now let’s dive into this, and this is going to be really quick for me, because quite frankly Google doesn’t give a lot up about Google Cloud. And Google Cloud comprises IS, PaaS and SaaS services, SaaS services like Google Workspace, and IS services like IS services, and everything in between. And they’re very strong in IS and PaaS and machine learning and analytics, and they typically use it as a land and expand strategy to go in and get more.
But net net, Google Cloud had 45% growth, all the way to $5.4 billion. You can do the math, gets them to a $22 billion run rate business that, quite frankly, is incredible. And the team there and the leadership team deserves a lot of credit. They are still losing a lot of money, they lost $890 million in the recent quarter, but that loss narrowed. It narrowed 39% year-on-year, and it narrowed $353 million. And that’s it, that’s, I’m sticking to my guns, baby.
Daniel Newman: Yeah, I think we can keep this one fairly short, Pat. Had the chance to talk to Emily Chang about this, I’m doing my victory lap. You’ve taught me how to do this, I’m so good at it now. But enjoyed the opportunity to do this with talking Alphabet, and this is the part that’s most interesting to me.
Look, the company’s financials are incredible, the amount of revenue and earnings they create, but that’s all the advertising business. The one thing I think everybody can pretty much shake off at this point is that the IDFA Apple stuff is going to hurt Google. It might, but not in a way that’s anywhere nearly as adverse as what it’s done to Meta. And I guess that’s the difference of having people that use your platform because they want to, and people who are being advertised to because they want to talk to their friends. It’s a totally different experience, and people continue to go to Google, use Google.
And by the way, we’ll circle back, because I’d say Amazon’s had a surprisingly big advertising business, too. But the cloud business, Pat, there’s a really simple conversation that’s going to continue every quarter until it’s not, and that’s do they become profitable? And by the way, do they need to be profitable? And that’s probably, arguably maybe the bigger question, is Google doesn’t want to be number three or four. And then depending on how they’re being ranked, in some cases they’re sitting behind Oracle, too. Google wants to be number one. Google doesn’t do things to be number three or four.
And so growing organically or racing for profits when you’re creating huge earnings per share through other parts of your business, do you get the leeway from the markets to invest, grow, and not make money? And, by the way, be pretty transparent about it. Because a lot of companies could just hide that in that overall number, and just say, “Hey, cloud’s now X billions of dollars, we’re not going to-”
Patrick Moorhead: And they did do that for a while.
Daniel Newman: For a while. But they had to break out the revenue. But I’m saying, they could be spouting off the revenue, Pat, and not sharing the loss. They could just say, “Hey, this is how much revenue we’re doing,” and just bury the actual loss into the bigger number. They’re being transparent. So I give them credit for that particular action.
They’re going to try to grow, you see, we’ll get to AWS soon, but almost 18 billion a quarter. That’s the number that’s in the mind of Google, that’s the number they’re chasing, and all I’m saying is they’re going to spend and they’re going to spend, and don’t even be surprised in my opinion if you see the losses stop. You may see bigger losses, because if they’re going to want to grow, they’re going to need to make acquisitions, they’re going to need to add services, they’re going to need to build more data centers, they’re going to need to buy more compute power, they’re going to need to hire more salespeople. And I think they’ll do it.
And by the way, I don’t know that that’s wrong, because when you have the business they have, the leading side of their company, I think they’re allowed to do that. So I’m not saying it’s right or wrong, that’s a decision they’ll have to make. But if their shareholders, and following their, what, 20 to 1 split now? Don’t feel confident and don’t get excited, and they’re worried about Google Cloud and they sell for that reason, I’d be surprised. Because it’s growing at a good pace, not quite as fast as Azure, but it’s growing at a good place, they’re narrowing losses for now, they’re gaining customers every quarter, I think Google Cloud has a bright future.
Patrick Moorhead: And check this out, I had to share this with you, with the audience. So Corey Quinn, we kind of go back and forth with him on Twitter. By the way, he’s an economist for his company, and he essentially helps AWS clients. And he had a really nice thing to say, and you can read it here, about Google Cloud. He said essentially, if he were starting from scratch, he would pick Google Cloud. And I know people were talking about that, we were going back and forth about it. But that, if nothing else, is some pretty strong affirmation for Google Cloud.
Daniel Newman: Yeah, Pat, it’s hard to not feel like they’re going the right way. The knock is going to be profit. But I don’t know if that’s a knock when you have a business that’s creating the type of income they have. Don’t they get to make best? Don’t they get to invest in growth? Every company does that. The market can be disproportionately critical of things at times. But I would be betting more on Google’s investment than Meta’s silly $10 billion a year investment in VR headsets. So call me wrong when I’m wrong, but I’m not buying that $800,000 plot of land next to Snoop Dogg’s Metaverse house. Just not yet, not yet. Not saying the metaverse isn’t real, just hasn’t, I don’t think that’s as smart of an investment as what Alphabet’s doing.
So hey, we got one topic left to go, and let’s stay on the hyperscalers, Pat.
Patrick Moorhead: Let’s do this.
Daniel Newman: Let’s stay tight, let’s stay narrow, and let’s talk about the cloud business. Because the huge one-time profit from Rivian, which was super cool and everything that they were able to surprise by like $24 a share, that was a bit of a windfall. So that didn’t necessarily make entire sense. But what I will say, Pat, is that broader result did kind of save the market yesterday, because the market was in a tailspin. So I think after Meta’s result, people were really thinking it might be doom-y for Amazon, ecommerce was going to get crushed. But it was only up 1%, the actual traditional ecommerce business.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
