Google Cloud sales surge 46% to $13.1 billion in 2020

Google parent Alphabet Inc on Tuesday reported record revenue for the second straight quarter despite the pandemic, driving shares up 6 percent as it topped estimates for both advertising and Cloud sales as customers unleashed budgets for the holidays.
Google Cloud at IT trade showCutbacks by travel and entertainment advertisers in 2020 were nearly made up as the year went on by new spending from retail clients and others that were driven online by COVID-19 lockdowns.

Google’s advertising business, including YouTube, accounted for 81 percent of Alphabet’s $56.9 billion in fourth-quarter sales, which rose 23 percent compared with a year ago.

Google’s Cloud unit also benefited from the pandemic. Google Cloud sales were $3.83 billion, or $13.1 billion for the full year, up 46 percent from 2019.

In a new disclosure, Alphabet said Google Cloud posted an operating loss of $1.24 billion in the fourth quarter and $5.6 billion for 2020, a 21 percent wider loss than in 2019.

Google, which generates more revenue from internet advertising than any company globally, has long faced questions over whether it can spin the cash from its advertising business into a newly profitable venture. The new financial details suggest that goal still may be years away.

Alphabet’s quarterly profit rose 43 percent to $15.2 billion, or $22.30 per share, compared with the average estimate of $10.895 billion, or $15.95 per share.

The company said it expects a $2.1 billion boost to operating results in 2021 after a new assessment extended the useful life of its servers and networking gear by a year or more.

Though Alphabet increased its cash hoard by $17 billion in 2020 to $137 billion, investors continue to scrutinize its growing expenses.

Alphabet’s costs to license programming for YouTube, operate data centers and stock consumer products have soared in recent years. Those other costs of revenue now account for about 27 cents for every $1 in sales, up from 23 cents four years ago.

The company’s traffic acquisition costs, which include revenue-sharing agreements with Apple Inc and other companies to distribute Google services, are growing more slowly than the other costs and have steadied at about 18 percent of sales.

Last year, the company slowed hiring and capital expenditures.

Alphabet’s revenue, which for years had consistently increased by about 20 percent annually, in 2020 increased by just 12.8 percent. That marked its slowest growth since 8.5 percent during the Great Recession in 2009.

Google’s lead over the global internet advertising market is shrinking as Amazon.com Inc becomes a bigger threat and China-focused vendors such as Alibaba enjoy a faster rebound from the pandemic. Last week, research company eMarketer estimated Google will capture 30 percent of the market in 2021 while increasing sales by 18 percent to $117 billion.

Google is fighting antitrust investigations or charges across Australia, Asia, Europe and North America.

In addition, Google has threatened to pull its search engine from Australia if the country enforces new rules that would require the company to negotiate fair payments to news publishers to include their content in results.

Analysts also have expressed concern about potential revisions to content moderation laws under new U.S. President Joe Biden. Those laws currently favor companies such as Google.

Alphabet also is monitoring a nascent worker unionization effort and facing ongoing criticism about its underperformance in hiring and retaining women and racial minorities.