Google Cloud makes its first profit, 15 years after launching

Alphabet finds $1.6 billion of benefits by sweating its servers and networks for longer

Google's cloud business has made a profit for the first time.

For the quarter ended March 31, the G-Cloud won $7.4 billion of revenue and produced operating income of $191 million – a 2.5 percent profit.

Not a massive profit. Amazon Web Services won $80 billion of revenue in 2022, producing operating income of $22.8 billion for 28 precent profit. Google Cloud may have finally found some black ink, but it's a few drops compared to cloudy rivals. And the chocolate factory has produced barrel-loads of red ink in the past: in the three years to 2021 it lost $14.6 billion.

Alphabet boss Sundar Pichai didn't mind those losses because he predicted better days lay ahead, and Google was profitable even as it sank billions into its cloud.

He was pleased with this new result. "Our disciplined expansion of our product road map and go-to-market organization has helped to build one of the largest enterprise software companies in the world," he said. And at $28 billion run rate, just 15 years after launching, he's not wrong. Even if the unit's revenue is well behind AWS and Azure, which launched in 2006 and 2010 respectively.

Google Cloud’s positive contribution came at a handy time. just as Pichai revealed $2.6 billion in charges covering severance expenses and the cost of bailing from unused office space. That and tough market conditions saw Q1 revenue land at $69.8 billion – just three percent higher than for the corresponding quarter of 2022. Google Cloud's year on year revenue growth of $1.6 billion was the largest across all of Alphabet's businesses.

A similar contribution came from the search and advertising giant's decision to extend the life of its servers from four years to six, and to run network equipment for six years instead of five.

That decision saved Alphabet $988 million in depreciation costs and delivered an increase in net income of $770 million – or $0.06 per basic and $0.06 per diluted share.

On an earnings call, Pichai was asked if adding generative AI to Google's search service would raise future infrastructure costs. He replied that he thinks the megacorp will be able to keep things under control. The CEO dodged a question about what percentage of search queries he expects will be handled by Bard – Google's large language model – saying only that Google will give users lots of choice.

Google itself is making tough choices: CFO Ruth Porat told investors the outfit remains "committed to delivering long term growth and creating capacity to invest in our most compelling growth areas by re-engineering our cost base."

Which doesn't sound a lot like Google or Alphabet feels like it has sizzling hot new profit engines in its pipeline. That’s a concern, because operating income and margin both dipped markedly year on year in this quarterly announcement. ®

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