Google Cloud Earnings Preview: Profit, AI And Sergey Brin
Can Google Cloud turn a profit again? Will there be any big Google AI announcements? Here’s five things to watch for during Google’s Q2 2023 earnings.
Can Google Cloud turn a profit for the second time in the cloud company’s history? Will the cloud computing giant make any blockbuster artificial intelligence (AI) announcements or provide new insights on its generative AI roadmap? Will Alphabet CEO Sundar Pichai comment on Sergey Brin—Google’s co-founder and former president—reportedly coming back to work on its AI project called Gemini?
Google Second Quarter Earnings Estimate: $7.72 Billion
The Mountain View, Calif.-based search and cloud giant is set to unveil its financial earnings results for the second quarter of 2023 on July 25 after the market closes. Google’s second quarter ended on June 30, 2023.
Zacks Investment Research projects that Google Cloud will report total revenue of $7.72 billion for Q2 2023, which would represent a 23 percent sales growth rate year over year. If Zacks’ estimate comes to fruition, it would mark one of the company’s lowest year-on-year sales growth rates in some time.
In first quarter 2023, Google Cloud generated total sales of $7.45 billion, up from $5.82 billion in first quarter 2022. The cloud company turned a profit for the first time in its history during Q1 2023. Google Cloud’s main growth drivers include its flagship cloud solutions Google Cloud Platform, known as GCP, and Google Workspace, which includes collaboration tools like Gmail and Chat. The cloud company also invested heavily in AI and generative AI during the second quarter of 2023.
CRN breaks down the five most important things to watch for during Google’s Q2 2023 earnings report on Tuesday after the markets close.
Can Google Cloud Turn A Profit Again?
Google partners, investors and customers will be watching Tuesday to see if Google Cloud can become a profitable company quarter after quarter in 2023.
After years of generating an operating loss, Google Cloud turned a profit in Q1 2023 for the first time in the company’s history. Google Cloud captured operating income of $191 million in first quarter 2023 and had an operating margin of 2.6 percent.
The company has historically been in the red for profitability, typically generating hundreds of millions of dollars in operating losses every quarter over the years. For example, in 2022, the company reported an overall operating loss of $1.9 billion for the year.
The Takeaway: Google Cloud’s second quarter 2023 operating results will show if the world’s third-largest cloud provider can remain a profitable company for the long haul.
Google Cloud Sales Growth Rate Might Be Relatively Low
Zacks Consensus Estimate is predicting that Google Cloud captured $7.72 billion in revenue during the second quarter of 2023, which would represent a year over year sales increase of 23 percent.
If Zacks estimate is on par with the actual results, the 23 percent revenue growth rate estimate would be on the low-end for Google Cloud from an historical standpoint.
Google Cloud typically has reported year over year quarterly sales growth in the high 20s to high 30s over the past several quarters.
For example, Google Cloud grew total revenue by 28 percent year over year in Q1 2023 thanks to generating $7.45 billion in sales. In fourth quarter 2022, Google Cloud generated $7.3 billion in revenue, representing year over year sales growth of around 30 percent. During third quarter 2022, the company increased revenue by 38 percent year over year after generating $6.87 billion in sales.
The Takeaway: It is key to note that Google’s two largest cloud competitors, AWS and Microsoft, have both reported relatively lower cloud sales growth rates in 2023 compared to prior years. In Q1 2023, AWS reported cloud sales increased 16 percent year over year, while Microsoft’s Intelligent Cloud segment also reported a sales increase of 16 percent. If Google Cloud does in fact report a 23 percent sales increase for its second quarter, it will show that Google Cloud is now facing similar headwinds as AWS and Microsoft.
Is Sergey Brin Back Full Time?
Google’s co-founder and former president, Sergey Brin, is back working for the company, according to multiple reports.
In 2019, Brin left the company he helped build from a startup, but is now reportedly back in order to boost Google’s biggest investment this year: AI. The billionaire has been regularly seen working inside Google’s Mountain View, Calif. headquarters as of late, according to a several news reports.
Brin has increased his role and participation in AI meetings inside Google’s offices which is a major change from previous years. Additionally, he has played a role in personnel decisions such as new hires.
Specifically, Brin is reportedly working on Google’s new general-purpose AI platform dubbed Gemini (more in next slide).
The Takeaway: If Google wants to make a statement in the red-hot generative AI market, the company should mention that Brin is back onboard to drive innovation and AI market momentum.
AI Project Gemini
Google Cloud has made a splash in the generative AI market in 2023 with a slew of new offerings while also injecting generative AI capabilities into flagship products GCP and Google Workspace.
One big new solution is PaLM API, a developer offering to make it easier and safer to experiment with Google’s large langue models (LLMs). PaLM API provides access to models that are optimized for multi-turn use cases— such as content generation and chat, as well as general-purpose models optimized for areas like summarization and classification. PaLM 2 was launched in May and offers stronger models in logic and reasoning.
Arguably Google Cloud’s biggest generative AI project in the works right now is Gemini, a new AI foundational model targeting Microsoft-backed OpenAI’s GPT technology.
“Gemini was created from the ground up to be multimodal, highly efficient at tool and API integrations and built to enable future innovations, like memory and planning,” said Google CEO Pichai earlier this year. “While still early, we’re already seeing impressive multimodal capabilities not seen in prior models. Once fine-tuned and rigorously tested for safety, Gemini will be available at various sizes and capabilities, just like PaLM 2.”
The Takeaway: If Google wants to make a big generative AI market splash during its second quarter earnings report, the company will provide an update as to when Gemini will become generally available or available in preview for select customers and partners.
Can Google Cloud Become An Even Largest Part Of Alphabet?
Parent company Alphabet has become more reliant on Google Cloud over the past several years to drive sales growth compared to its massive advertising business on Google Search and YouTube.
In Q1 2023, Google Cloud’s $7.45 billion in revenue represented nearly 11 percent of Alphabet’s total sales of $69.8 billion. Meanwhile, Google’s advertising business reported flat sales growth during the quarter.
Comparatively in Q1 2022, Google Cloud sales represented only about 8.5 percent of Alphabet’s total revenue. In Q1 2021, Google Cloud revenue represented less than 8 percent of Alphabet’s total revenue.
The Takeaway: With Google Cloud being its parent company’s largest sales driver in 2023, it bodes well for the cloud company’s future in terms of Google’s willingness to invest billions to expand Google Cloud’s customer base, partner program initiatives and cloud services footprint on a global basis. It will be interesting to see if Google Cloud revenue exceeds 11 percent of Alphabet’s total sales in the second quarter of 2023.