Alphabet Earnings: Google Cloud Revenue Climbs 54 Percent To $4.63B

‘Our innovative products, focused go-to-market strategy and growing ecosystem are driving our momentum,’ Alphabet and Google CEO Sundar Pichai says.

Google Cloud revenue climbed nearly 54 percent in the second quarter, as parent company Alphabet exceeded analysts’ overall revenue and earnings expectations on a rising tide of online consumer and business activity.

The industry’s third largest cloud computing provider, Google Cloud saw its revenue grow to $4.63 billion for the three-month period that ended June 30, from $3 billion in the same period last year.

“Our innovative products, focused go-to-market strategy and growing ecosystem are driving our momentum,” Alphabet and Google CEO Sundar Pichai said during the Mountain View, Calif.-based company’s earnings call today with financial analysts. “Organizations across industries are choosing Google Cloud as their platform for digital transformation, including SAP customers like PayPal, Johnson Controls and Whirlpool, who have deployed SAP environments on Google Cloud.”

Google Cloud is on track for an $18.5 billion annualized revenue run rate, up from $16.2 billion in the first quarter and $12.03 billion in last year’s second quarter.

Google Cloud’s operating loss dropped to $591 million in the second quarter, from $1.43 billion in the same quarter of 2020.

Alphabet started breaking out operating results for Google Cloud — which includes Google’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers — when it reported its fourth-quarter 2020 revenue of $4.04 billion and a $974 million operating loss in February. Google Cloud revenue is generated primarily from fees received for Google Cloud Platform (GCP) services and Google Workspace collaboration tools.

For the second quarter, GCP’s revenue growth was again above the cloud overall, reflecting significant growth in both infrastructure and platform services, according to Ruth Porat, chief financial officer for Alphabet and Google Cloud. Strong growth in Google Workspace revenues was driven by robust growth in both seats and average revenue per seat, she said.

“We remain focused on revenue growth and are pleased with the trends,” Porat said. “Across cloud, we will continue to invest aggressively given the opportunity we see.”

Trends Impacting Google Cloud

Pichai called out several of those trends impacting Google Cloud.

“First, the increase in cyber and ransomware attacks is a wake-up call for the industry,” he said. “Over two decades, Google has built some of the most secure computing systems in the world, and we are proud that our Google Cloud customers can benefit from our experience here. Customers like Major League Baseball are partnering with Google Cloud to further enhance their security program. We pioneered the zero-trust approach, an architecture that builds in multiple layers of defense against unauthorized access. This approach and other security solutions help customers minimize the impact of cyberattacks and prevent them completely.”

Google Cloud sees its security offerings as a strong differentiator that’s generating a lot of conversations and interest, according to Pichai.

“It’s our strongest product portfolio, and we are continuing to enhance our solutions speed, integrating Chronicle, BeyondCorp and all the product components we have there,” Pichai said. “You’ll continue to see us invest here.”

Second, Google’s expertise in real-time data and analytics continues to differentiate Google Cloud in the data cloud, one of the fastest growing segments of the cloud market, according to Pichai.

“(Google Cloud’s) BigQuery is not only a data warehouse, it’s a platform for customer innovation, and it’s helping drive our strong year-over-year growth with customers like HCA Healthcare, who will be using BigQuery to analyze data to improve clinical care,” Pichai said. “Additionally, our deep expertise in AI (artificial intelligence) and machine learning remains a key differentiator, winning customers like Groupe Casino, and leading to partnerships with the industrial automation leaders like Siemens.”

Google Cloud’s focus on delivering industry-specific solutions and its open cloud infrastructure enable the provider to support leading telecommunications companies including Reliance Jio, Telecom Italia and Ericsson to work together on applications and new solutions for 5G networks and mobile edge computing, according to Pichai.

“Third, Google Workspace continues to show strong growth, particularly in the enterprise space, because we have designed the product to meet the challenges of hybrid work,” Pichai said. “This includes the announcements we made at (Google I/O 2021, a developers conference) about smart canvas, as well as expanding our advanced security and compliance capabilities and solutions for frontline workers. These innovations are landing wins with companies like Carvana, the online auto retailer, and software company Red Hat.”

Overall Alphabet Results

Overall Alphabet revenue climbed 62 percent to $61.9 billion in the second quarter, from $38.29 billion in revenue in last year’s second quarter, when the company recorded its first-ever quarterly revenue decline since going public in 2004.

“Our strong revenue performance in the second quarter reflects lapping the impact of COVID on our business, elevated consumer online activity, broad-based strength in advertiser spend, as well as the benefit of excellent ongoing execution by our teams,” Porat said.

Analysts had expected Alphabet revenue of $46.07 billion, according to Zacks Investment Research.

Alphabet’s net income increased to $18.52 billion or earnings per share (EPS) of $27.26, from $6.95 billion or EPS of $10.13 in the prior-year period. Analysts had expected EPS of $19.89, according to Zacks.

“We set a number of records this quarter,” Pichai said. “This quarter, publisher partners earned more than they ever have from our network. We also paid more to YouTube creators and partners than any quarter in our history. And on top of that, over the past year, we have sent more traffic to third-party websites than any year prior, in addition to generating billions of direct connections — like phone calls, directions, ordering food and making reservations — that drove customers and revenue to businesses around the world that are working to get back on their feet.”

Pichai started the earnings presentation by acknowledging that the new COVID-19 variants have been challenging for many communities across the world.

“As the pandemic evolves, we want to help people get the information they need to keep themselves and their families safe,” Pichai said. “I really encourage everyone to get the vaccine when it’s available to you.”

Alphabet stock, which closed 1.59 percent today to $2,638 per share today in regular trading, was up 3.3 percent to $2,725 per share in after-hours trading as of 7:15 p.m. ET.