Google’s cloud business turns profitable for the primary time on record

Google has been pouring money into its cloud-computing business to compete with Amazon and Microsoft. Those hefty investments are finally turning a profit.

Alphabet said Tuesday that Google’s cloud business is profitable for the primary time within the three years it has been reporting operating metrics for the division.

The segment generated $191 million in operating income on $7.45 billion in revenue in the primary quarter, in line with Alphabet’s earnings statement. Within the year-ago quarter, the unit reported a $706 million loss on $5.82 billion in revenue.

The cloud business includes the Google Cloud Platform, which rents out cloud infrastructure and services that firms can use to construct and run their very own applications, in addition to Google Workspace productivity software subscriptions. Together, the business now accounts for 10% of Alphabet’s total revenue. Cloud customers include Deutsche Bank, Major League Baseball, PayPal and UPS.

Google has been vying to win business from big corporations and government agencies which are deciding between major tech vendors as they move from traditional data centers to the cloud and depend on more compute-heavy applications involving artificial intelligence. Amazon Web Services, the leader in cloud infrastructure, popularized the market within the mid-2000s and has been profitable every quarter since 2014. Microsoft, the second-biggest player within the space, doesn’t report profitability figures for its Azure unit.

Alphabet began disclosing cloud revenue in 2020, and the next 12 months began providing information on the size of its operating losses.

Last week Alphabet restated operating income for cloud and its other segments, leading to lower cloud losses in 2021 and 2022. The restated numbers show the cloud unit had a $186 million operating loss within the fourth quarter, compared with $480 million before the change, for instance.

“Certain costs related to corporate initiatives supporting consumer-facing activities, previously reflected in unallocated corporate costs, are actually allocated to Google Services; and centrally-managed shared research and development activities, including our shared developer tools, are actually allocated based on an updated measure of the relative profit derived from the services,” Alphabet said in a filing.

“In consequence of those changes, more of the previously unallocated corporate costs are allocated to our segments, and more of certain previously allocated costs are allocated to our consumer-facing Google Services products and fewer to Google Cloud enterprise products.”

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