Alphabet’s cloud unit is losing $ 5.6 billion a year, and the company is beginning to question whether it can move cash from its successful advertising business to a profitable new venture.
Alphabet Inc. beat sales expectations in the fourth quarter on Tuesday, as advertising customers gained budget for the holidays, and the Google owner revealed for the first time that its cloud unit was losing $ 5.6 billion a year.
Shares of Alphabet, up 9.5 percent this year, rose 7 percent after the hour to $ 2,053.75.
Google’s advertising business, including YouTube, accounted for 81 percent of Alphabet’s $ 56.898bn in fourth-quarter sales, an increase of 23 percent from a year earlier. The budget was cut by travel and entertainment advertisers in 2020 as the year passed due to new expenses from retail and other customers run online by the COVID-19 epidemic.
Analysts tracked by Refinitive projected quarterly revenue of $ 53.129bn, or 15.31 percent.
Cloud disclosure is a major milestone for Google, which generates more revenue from Internet advertising than any company globally. Google has faced questions over the years over whether it can turn cash from its advertising business into a new profitable venture.
Alphabet said that Google Cloud reported a quarterly operating loss of $ 1.24bn. Google Cloud sales for the full year were $ 3.831bn, or $ 13.059bn, up 46 percent by 2019.
Cloud operating loss for the full year rose 21 percent to $ 5.6bn.
As of last year, Google Chief Executive Sundar Pichai added the title of CEO of Alphabet, he has given investors greater clarity in the performance of the giant company. Prior to sharing cloud costs and operating income, the company began disclosing cloud and YouTube advertising sales.
Revenue from the Google Play mobile app store, YouTube subscriptions and consumer products is still in a category. Sales to small businesses, Alphabet calls “other bets” that include Internet provider Google Fiber, artificial intelligence software maker DeepMind, and health technology businesses, are grouped together separately.
Alphabet’s quarterly profit rose 43 percent to $ 15.2bn, or $ 22.30 per share, while the average estimate was $ 10.895bn, or $ 15.95 per share.
Alphabet’s revenue, which had grown by nearly 20 percent annually over the years, increased to just 12.8 percent in 2020. During the Great Recession in 2009, its growth rate was 8.5 percent.
The company is undervalued compared to some rivals. Shares of Microsoft Corp were expected to trade 10 times over the next 12 months on Tuesday and seven times in Facebook Inc., while Alphabet’s shares were up nearly six times.
Google’s growth in the global Internet advertising market is shrinking as Amazon.com. Inquilab poses a major threat and China-focused vendors such as Alibaba enjoy rapid rebound from the epidemic. Last week, research company eMarketer estimated that 30 percent of the market would occupy the market in 2021, while sales would increase 18 percent to $ 117bn.
Google is fighting antitrust investigations or allegations in Australia, Asia, Europe and North America.
In addition, Google has threatened to pull its search engine from Australia if the country enforces the new rules, requiring the company to negotiate a fair payment to news publishers to include its content in the results.
Analysts have also expressed concern about possible amendments to content moderation laws under new US President Joe Biden. Those laws are currently in favor of companies such as Google.
Alphabet is also overseeing a neonatal activist unionization effort and is facing ongoing criticism about its underperformance in hiring and retaining women and racial minorities.