Alphabet presents Google Cloud sales for the first time and it’s not great

Google’s parent company, Alphabet, just released its fourth-quarter earnings, which shows strong growth across much of the business. Total revenue grew more by more than $10 billion YoY to $56.90 billion, while net income grew to $15.23 billion. One of the driving factors for Google’s growth was due largely to Search and YouTube revenue, particularly from brand ads. Google Cloud continued to lose money, with more than $1.2 billion lost in the fourth quarter, but the company expects it to improve going into 2021.

Google attributed much of its growth to the continuous digital shift that occurred within the past year due to the pandemic. While ad revenue slowed down at the beginning of the pandemic, things picked up later in the year, particularly with the 2020 election. In the fourth quarter, YouTube ad revenue rising more than 46% thanks to election and holiday ads.

Google’s Cloud service, which the company presented separately for the first time, did not fare so well. While it did see an increase in revenue for the quarter and over the course of the year, it still suffered a heavy loss. Q4 revenue for Google Cloud was up 47% YoY to $3.83 billion, while it lost around $1.2 billion. Unfortunately while revenue for the year at more than $13 billion, the segment still managed to lose more than $5.5 billion in 2020.

Google remains confident that its business will continue to trend more positively as it has done throughout 2020, and will “benefit from increased scale over time”. One contributing factor could be the recently penned deal between Google and Ford, which will see the automotive company integrate Google’s cloud platform throughout its business.

Our strong fourth-quarter performance, with revenues of $56.9 billion, was driven by Search and YouTube, as consumer and business activity recovered from earlier in the year. Google Cloud revenues were $13.1 billion for 2020, with significant ongoing momentum, and we remain focused on delivering value across the growth opportunities we see.

Alphabet also took a moment to welcome Fitbit to the company, with CEO Sundar Pichai saying he “looks forward to sharing more about [their] product plan,” while being careful not to give anything away. It will be interesting to see how the newly completed acquisition plays into Google’s wearable strategy going forward, as Wear OS is still lagging behind competitors while Fitbit continues to make many of the best fitness trackers on the market.

Alphabet was largely mum on its ongoing legal battles, which no doubt affected some of its financials. Just recently, Google was fined for workplace discrimination against female and Asian employees and candidates, and the company now faces a growing lawsuit against it for its monopoly over Google Search ads, which helps make up a big part of the company’s ad revenue. YouTube was also under much scruitiny over its content moderation practices leading up to the presidential inauguration, so it will be interesting to see how this might affect one of the company’s strongest segments going forward.