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Google Cloud started running its servers for an extra year, still loses billions

Parent company Alphabet hails first year of revenue above $250B

Google Cloud has racked up another 12 months of losses, despite extending the life of its hardware by a year.

The search and ads giant in 2021 revealed that it extended the operational lifespan of its cloud servers from three to four years and found it could squeeze an extra couple of years out of some networking kit, sometimes going five years between refreshes.

In its Q4 2021 results announcement Google's parent company Alphabet revealed the financial impact of that change: for the full year Google Cloud reduced depreciation expenses by $2.6 billion.

But even with those old servers generating savings, Google Cloud produced losses: $890 million in Q4 and $3.1 billion across the year.

Google Cloud's last four years produced the following numbers.

Year 2018 2019 2020 2021
Revenue in millions $5,838 $8,918 $13,059 $19,206
Profit (loss) in millions ($4,348) ($4,645) ($5,607) ($3,099)

On Alphabet's earnings call, execs preferred to focus on Google Cloud's revenue growth, which was up 45 per cent year-over-year. CEO Sundar Pichai also revealed that Alphabet's backlog revenue increased more than 70 per cent to $51 billion – most of which is attributable to commitments to spend on Google Cloud.

He rattled off a list of blue-chip clients that have committed to the Goog-Cloud to demonstrate where that money will come from, noted a more-than-tripling of the sales force, and channel partners more than doubling their revenue contribution.

Those customers are presumably happy to have their code run on old servers, despite Intel promoting its most recent Xeon Scalable silicon as delivering "1.46x average gen-on-gen performance improvement".

Google Cloud's red ink didn't dampen Pichai's overall mood, because Alphabet hauled in $257.6 billion revenue in 2021 – up 41 per cent year on year. Net income was a tick over $76 billion. Do the math: that's over $200 million profit each day of the year.

Ad sales grew, and Pixel handsets set new sales records. The company's share price briefly topped $3,000 in the quarter. Alphabet announced that in July it will conduct a twenty for one stock split, meaning shareholders will be granted 19 new shares for each they currently hold. That's a tactic often used to make investment less intimidating for small buyers.

The company now has its sights set on connected televisions to drive that profit even higher.

Senior veep and chief business officer Philipp Schindler told investors that connected tellies have become Alphabet's "fastest-growing screen, and we think there's a ton of runway ahead."

"Brands… can personalize ads at scale and use video ad sequencing to tell powerful stories," he said, adding that advertisers can target connected televisions "which means users get a more helpful viewing experience and brands get to drive more online sales and/or leads."

Right into your eyeballs, at home. And quite possibly powered by software running on four-year-old servers and five-year-old routers. ®

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