Google Cloud Earnings Preview: 5 Big Things To Watch For In Q3

From operating losses and sales growth to hiring freezes, here are the five biggest things to watch for during Google and Google Cloud’s third quarter financial earnings tomorrow.

5 Things To Know Before Google’s Q3 Earnings

Google is set to release the financial results for Google Cloud’s third quarter on Tuesday with high expectations for the roughly $24 billion cloud company.

Big lingering questions revolve around Google Cloud’s employee hiring status, the company’s recent acquisition of cybersecurity superstar Mandiant, and if sales growth can keep rising at such a blistering pace.

Google Cloud has been on a sales tear since CEO Thomas Kurian took over the reins in late 2018.

When he first arrived, Google Cloud was generating $5.8 billion in total sales as of 2018. In the second quarter of 2022 alone, the Mountain View, Calif.-based cloud company captured $6.3 billion in total sales.

Google Cloud Momentum

Google Cloud held its annual Google Cloud Next 2022 conference this month where the company unveiled a slew of new cloud technology offerings, including new BigQuery, Workspace and virtual machines solutions and Google partner incentives.

Google Cloud also unveiled many new strategic partnerships such as with Accenture and ServiceNow as the company strives to have the most open cloud ecosystem and platform in the world.

The company’s global channel leader Kevin Ichhpurani says customers and channel partners are flocking to Google Cloud because of its openness, partner-centric go-to-market mantra and customer cloud transformation momentum.

“If you look at what customers are doing today, they’re using analytics and AI to change their business process or invent a new business model,” said Ichhpurani. “They’re not just moving VMs to the cloud, but they’re modernizing those applications to support a new business process. Data and AI and app modernization are where the puck is going—and it’s the sweet spots of Google Cloud.”

Google’s earnings for its third quarter 2022 is scheduled for Tuesday, Oct. 25 at 5 p.m. ET after the markets close with top Google executives including CEO Sundar Pichai in attendance to weigh in on the results.

Here are the five biggest things Google Cloud customers, partners and investors should keep an eye on.

Can Google Cloud Come Closer To Making A Profit?

Although Google’s cloud computing unit has no problem increasing sales, it isn’t making a profit.

For its most recent second quarter 2022, Google Cloud had an operating loss of $858 million.

In the first quarter 2022, Google Cloud reported an operating loss of $931 million.

However, this constant operating loss is most likely due to significant infrastructure investments. In order to keep up with cloud demand on a worldwide basis, Google pours billions each year into building, equipping and expanding its data centers which power its cloud services.

During a Q&A session at Google Next 2022, CEO Thomas Kurian noted that Google Cloud’s profitability margin was negative 82 percent when he took over the company almost four years ago.

Today, that figure is “approaching single digits,” he said.

“Alphabet’s board has options to invest in lots of things, and based on the results they’ve seen from Google Cloud, they are continuing to invest in our business,” said Kurian.

What To Look For: If Google Cloud’s operating loss decreases or increases compared to second quarter 2022. This will show if Kurian has the capability to make Google Cloud profitable in 2023.

Will Sales Increase Exceed 40 Percent Year Over Year?

Google Cloud increased sales by 36 percent year over year during its second quarter 2022 by generating nearly $6.3 billion in sales.

For its first quarter 2022, the cloud unit’s revenue jumped 44 percent year over year by capturing $5.8 billion in total sales.

In fourth quarter 2021, Google Cloud revenues increase 45 percent year over year to more than $5.5 billion.

Google Cloud has been growing cloud revenues over the past year at a blistering pace.

What To Look For: If third quarter year-over-year sales at Google Cloud are above or below 40 percent growth. If sales growth exceeds 40 percent, it shows there’s little in Google Cloud’s way to win cloud market share ahead.

Is Hiring Freeze Officially Over At Google Cloud?

Last month, Google Cloud executives said they were in the process of unfreezing Google’s hiring pause by the start of October.

Google Cloud had planned to “complete” the unfreezing of employee hiring in some areas, according to an internal memo sent to employees. The memo said executive leaders in certain cloud teams were still trying to restart the hiring process in a few Google Cloud areas as of September.

In July, Google CEO Pichai said it was temporarily pausing hiring employees. “We’ll be slowing our hiring and sharpening our focus as a company,” said Pichai during Google’s second- quarter financial earnings call with media and analysts.

However, it appeared that Google Cloud would not feel too big of an impact in terms of the companywide hiring freeze as Google would still be hiring technical talent. “We are still focused on hiring engineering, technical and other critical roles,” Pichai said.

What To Look For: If Google executives talk about lifting or continuing its hiring freeze and what type of personnel it will continue to hire. Google Cloud should be safe if its parent company says it will still focus on hiring technical talent.

Will Google Provide Roadmap For Mandiant After $5.4B Deal?

Google acquired security star Mandiant for $5.4 billion last month.

The acquisition gives Google Cloud in-depth threat intelligence technology and expertise that Mandiant has built from working with the largest organizations in the world on the frontlines of cybersecurity.

Mandiant is now part of Google Cloud.

In a recent interview with CRN, Google Cloud’s security leader Jeff Reed said integration was always underway.

“Mandiant is unprecedented in terms of new capabilities that Mandiant has brought in,” said Reed, vice president of product for Google Cloud Security. “Nothing else is even like it in terms of the amount of security capabilities that we’ve brought into Google Cloud.”

Google Cloud is working on integrating the culture and technology of the two companies.

“We know that Mandiant had excellent threat intelligence, so it’s about how do we bring that threat intel on Chronicle as soon as possible? They do a bunch of things in a proactive perspective, so how do we do that now [at Google]?” said Reed.

What To Look For: Mandiant is Google’s biggest security acquisition in its history. With such bullish hopes, it will be interesting and important to hear Google’s Pichai and other executives talk about the plan for Mandiant now as part of Google Cloud.

Is Google Hitting Its 2022 Multibillion-Dollar Data Center Commitment?

Earlier this year, Google CEO Sundar Pichai said his company will invest a massive $9.5 billion in data centers and U.S. offices in 2022.

“Our investments in data centers will continue to power the digital tools and services that help people and businesses thrive,” said Google’s CEO in April.

Throughout 2022, Google has announced well over $1 billion in new data center projects both in America and abroad, including in Texas, Virginia and Oklahoma.

Google, Amazon Web Services and Microsoft are the top spenders on a worldwide basis in new data center spending which fuels customer and cloud growth in the geographies where new centers are built.

For example, AWS this month unveiled plans to invest $5 billion in Thailand alone to build a new AWS data center cloud region in.

What To Look For: The big three cloud players—AWS, Google and Microsoft—need to continue to invest billions in data center expansion to win over new customers of all shapes and sizes. With 2023 just months away, it will interesting to see if Google makes another bullish funding pledge specifically to data center expansion.