Google Cloud turns profit for the first time

Google Cloud may be chasing Amazon and Microsoft in the cloud game, but it has something big to boast about after earnings came out today. The company has turned a profit on its cloud unit for the first time since it began reporting cloud income several years ago.

The company reported cloud revenue of $7.4 billion in Q12023, that’s up from $5.8 billion in the year ago period, up 27.5%. But that growth is not the primary news nugget here. The company also reported an operating income loss of $706 million a year ago. This year it reported a $191 million gain. That’s huge for a company that has struggled in third place in the cloud market.

Yet even while Google Cloud revenue grew 27.5% this quarter, that growth is slowing from 32% last quarter and 38% the one before that. Cloud spending in general has been slowing as companies look more carefully at their cloud spend and cut back where they can.

Ray Wang founder and principal analyst at Constellation Research says that it shows how long a time horizon it requires to get to this point in this market. “It’s a significant milestone for Google Cloud, which started in April 2008. Fifteen years later, it’s now profitable. This shows how hard it is for new players to enter the space and what’s required to achieve escape velocity for cloud adoption,” Wang told TechCrunch

Insider Intelligence senior analyst Max Willens says that the slowing growth tempers the profitability news. “Its cloud segment turning a profit is notable, and a testament to management’s diligence in steering Cloud toward profitability. But the reality is that Google Cloud remains comfortably behind its two most important competitors, and its growth is slowing,” he said.

It’s worth noting that Google Cloud includes both the infrastructure and platform as a service pieces — which competes directly with Amazon Web Services and Microsoft Azure — along with Google Workspace, its productivity software package that includes corporate GMail, Docs, Calendar and so forth.

So that combined income means it’s not exactly an apples-to-apples comparison with its competitors, but it is still significant nonetheless, especially when you consider that the company reported losing a whopping $5.6 billion in the cloud unit in 2020. That’s quite a turnaround in just three years.

Even as it reports this positive quarter, the company laid off 12,000 people in January. It also reported it was buying back $70 billion in stock. Meanwhile CNBC reported that Alphabet CEO Sundar Pichai made $226 million in total compensation last year.