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Google Continues to Push Higher in the Cloud

By Evan Niu, CFA - Jul 25, 2017 at 5:27PM

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When will the search giant start disclosing cloud revenue?

Alphabet (GOOG -0.55%) (GOOGL -0.61%) reported second-quarter earnings last night, and while the results came in ahead of expectations, investors weren't all that impressed; shares are down 3% today as of this writing. Still, there's one part of the business that continues to push higher: Google Cloud.

On the earnings call, CFO Ruth Porat noted that Google Cloud, along with Google Play and Google's growing portfolio of hardware, are all enjoying "substantial growth" that's helping drive "Google other revenues" higher.

Googleplex exterior

Googleplex. Image source: Google.

Google is investing heavily in its cloud business

Porat noted that total head count is now over 75,600 employees, roughly doubling over the past four years. That includes hiring over 1,600 last quarter, and she noted that Google Cloud was seeing "the most sizable head count additions" as the division adds technical and sales roles. This is "consistent with the priority" that Google places on the business, according to Porat. These ongoing investments are helping drive results.

Google Cloud is included the broader and vague "Google other revenues" segment, which generated $3.1 billion in revenue last quarter, up 42% from a year ago.

Chart showing Google Other Revenues growing

Data source: SEC filings. Chart by author.

To be clear, all three of what CEO Sundar Pichai calls Google's "most promising bets" (YouTube, Google Cloud, and hardware) are accounted for in Google other revenues, so Google Cloud is but one contributor to those gains. Google still won't break out Google Cloud revenue separately, even as dominant competitor Amazon.com started disclosing Amazon Web Services (AWS) financials two years ago (Google and Microsoft should follow suit).

Pichai provided a little bit of additional detail for Google Cloud:

And to our next big bet with great momentum, Google Cloud. Google Cloud Platform, GCP, continues to experience impressive growth across products, sectors and geographies and increasingly with large enterprise customers and regulated sectors. To be more specific about our momentum with big customers, in Q2, the number of new deals we closed worth more than $0.5 million is 3x what it was last year.

Responding to the growth in existing and new customers around the world, we continue to invest in data centers to provide them the fastest, most reliable service. We opened new Google Cloud regions in Northern Virginia, Singapore, Sydney and London.

When asked by analysts about the broader cloud infrastructure strategy and where the business needs to head from here, Pichai added some more color:

Overall, when we think about our infrastructure, obviously, we are serving cloud as well as our internal products, which are seeing tremendous growth as well. In terms of serving cloud customers, we are world-class in availability and being reliable, and those are things we want to stay best in class. So we're clearly planning for that and planning ahead for our infrastructure, and we have been consistently doing that. And Heather, in terms of your question about workloads and stuff, we are actually seeing quite a diverse set of use cases across sectors and industries and geographies.

We do know that one of those particularly prominent use cases is Snap, which is one of Google Cloud's biggest customers thanks to the Snapchat operator's unique strategy of completely outsourcing infrastructure and hosting. Overall, Google still has a long way to go to catch up to AWS, but it's making progress.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Evan Niu, CFA has the following options: long January 2019 $20 puts on SNAP. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and AMZN. The Motley Fool has a disclosure policy.

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