Alphabet to offer first-ever disclosure of Google Cloud profit

Platform Industry: Google search engine

Alphabet will report some key financials for its Google Cloud business for the first time, disclosures that are expected to overshadow record overall quarterly sales for the worlds biggest digital advertising platform.

The transparency marks a milestone after years of aggressive investment and comes as the global coronavirus pandemic is pushing more work, shopping and entertainment online.

That drives the ad business Google dominates over rivals Facebook and Amazon.com, and it also has created a surge in demand for both parts of Google’s cloud business: computing services; and corporate productivity suites including tools like the Gmail service.

JPMorgan & Chase analysts, among the few to make predictions about Google Cloud, estimate the unit’s 2020 operating margin at about 2%. Bank of America analysts estimate an unspecified operating loss.

By comparison, Amazon’s AWS, the top cloud vendor by sales, posted third-quarter operating margin of 30.5% and $3.5 billion in operating income.

Microsoft’s Azure, the industry second biggest player, does not report comparable figures.

Google only got serious about cloud computing services in around 2016, some five years after Amazon’s unit had become the multibillion-dollar behemoth it is today. However, some leading analysts are hinting that Google may be ready to show that its heavy investment is paying off.

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COSTS

Alphabet’s costs have been an increasing concern for Wall Street as sales growth from the advertising business flattens out.

The company started disclosing Cloud and YouTube sales a year ago. Alphabet will provide a detailed annual breakdown for Cloud going back three years.

Wall Street analysts forecast fourth-quarter Cloud sales of $3.82 billion for Google, with expectations for the unit to cross $13 billion in annual sales, according to Refinitiv data.

The JPMorgan analysts estimate Google Cloud spent about 40% more in 2020 than Amazon’s cloud unit did in 2016, when it had about $12 billion in sales. Google’s spending reflects more competition, as well as cloud vendors expanding into newer technologies.

Analysts expect Google’s advertising business will post $42.6 billion in fourth-quarter sales, pushing overall Alphabet quarterly revenue to $53 billion. That would leave Alphabet with 2020 sales of $179 billion and profit of $11 billion.

The team at Platform Executive hope you have enjoyed this news article. Translation from English to other languages via Google Cloud Translation. Initial reporting via our official content partners at Thomson Reuters. Reporting by Munsif Vengattil in Bengaluru and Paresh Dave in Oakland, Calif. Editing by Matthew Lewis.

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