Four key takeaways as Google Cloud and AWS report Q4 results

Google Cloud reports its profits for the first time, while Amazon frontman Jeff Bezos vacates CEO post

There was some big news from both Google and Amazon as they both report their Q4 financial figures overnight.

While one revealed its earnings for its cloud business for the first time, the other announced that its frontman and founder was stepping down as CEO.

We dive into the key points from Amazon and Google's Q4 cloud numbers.

Bold growth figures from Google Cloud and AWS

The tech giants both enjoyed supercharged growth in their respective cloud divisions in Q4.

While Google Cloud's revenues rocketed by 47 per cent during the quarter to $3.83bn, AWS revenues grew 28 per cent to $12.74bn.

On a full-year basis, Google Cloud posted $13.1bn revenues in 2020, up 46 per cent, compared with AWS which added $10bn in revenues (30 per cent) to its business during the year to at $45.4bn.

Q4 was another quarter in which AWS' revenue growth rates showed signed of slowing. In Q4 of 2019, AWS' revenues grew by 34 per cent, while for full-year 2019 that growth rate was at 37 per cent.

Google Cloud discloses huge operating losses

With cloud playing an increasingly important role in their business, tech giants Amazon, Google and Microsoft have gradually begun to glean more detail on how their cloud computing divisions are performing.

Google reported its cloud figures in hard dollars for the first time last year, and now the firm is reporting the profit performance for its cloud division for the first time.

It makes for slightly uncomfortable reading. Google Cloud - which comprises Google Cloud Platform as well as G-Suite - recorded a $1.2bn operating loss in Q4 alone and a $5.6bn loss for 2020 as a whole. The firm's losses widened by $49m in Q4, but by sizable $962m in full-year 2020.

On an earnings call transcribed by Seeking Alpha, Google CFO Ruth Porat said that the operating loss reflects "meaningful" investment in its go-to-market organisation as well as engineering and technical infrastructure.

"Cloud's operating loss reflects that we have meaningfully built out our organization ahead of revenues," she said.

"Operating loss and operating margin will benefit from increased scale over time. In addition, we are focused on delivering on efficiency efforts across the board to contribute incrementally to profitability over time."

Porat added that losses are historically higher in Q1, but tend to improve as the year progresses.

Meanwhile, cloud computing competitor Amazon also posted the profit performance for its AWS division.

AWS' operating income grew by 37 per cent in Q4 to $3.56bn in Q4, and rocketed by 47 per cent to $13.53bn in 2020 as a whole.

But readers should not be alarmed by the huge losses from Google's cloud business, claims Brian Klingbeil, chief strategy officer at hybrid IT partner Ensono.

He said that Google is investing effectively in the market to catch up with AWS and Azure.

"Google has been investing heavily to catch up to AWS and Azure, and the results they released today reflect that," he said.

"One factor that is contributing to Google Cloud's hypergrowth is its prioritisation of verticalisation, which is a strategy that will set them up for success in 2021.

"We think they are investing effectively, as we are seeing interest in GCP building within the enterprise client base that we serve, so much so that we have added it to our managed services portfolio in 2021."

Google Cloud making tracks in the channel

Google CEO Sundar Pichai told investors that Google Cloud's indirect channel revenues have more than doubled over the past two years.

He also said that Google Cloud is now working with a much larger partner base, claiming that its channel partner ecosystem is now five times larger than it was two years ago.

This go-to-market investment allowed Google Cloud to win larger deals in 2020. Deals sized at more than $250m tripled in 2020 and the firm won several billion-dollar deals during the year, the CEO said.

Porat added that further investment has gone in to ensure that Google Cloud will hit its near-term goal of tripling the size of its Cloud Direct sales force.

A transition of power

Amazon dropped the bombshell in its Q4 results that its founder and CEO, Jeff Bezos, would step down and move into a new position as executive chairman.

Bezos will relinquish the CEO role to AWS boss Andy Jassy, signalling the future place of importance cloud computing will have in the wider Amazon business.

Speaking to investors, Amazon CFO Brian Olsavsky said that the news by no way means that Bezos is taking a step away from the business.

"Andy has a chance to put his imprint on Amazon. He is certainly going to carry through the culture and the vision and the invention factory that Amazon is and will take that to the next level.

"Jeff will be the executive chairman of the board. He will be involved in many large one-way-door issues, meaning the more important decisions - things like acquisitions, things like strategies and going into grocery and other things. So Jeff's always been involved with that, and that's where he will keep his time focused on in his new role," he said.

"We're very excited all around to see the ability to have a strong transition to Andy in Q3. We will be working on backfilling the AWS role and we will talk more about that in the future."