Google Cloud Q3 Earnings Preview: From AI, CFO To Profits

From profitability and generative AI to potentially a new CFO at Google, here are five important areas to watch during Google Cloud’s Q3 2023 earnings report on Tuesday.

Does Google Cloud’s profitability era continue in Q3 2023? Will Google unveil a new chief financial officer? What generative AI announcements does Google Cloud have up its sleeve on Tuesday?

CRN takes a deep dive on the five important things partners, investors and customers need to watch during Google’s third quarter 2023 financial earnings report.

The Mountain View Calif.-based $32 billion cloud computing giant is set to report the results for its Q3 2023 earnings on Tuesday at 5:30 p.m. ET.

[Related: Google Hires 5 New Execs From AWS, Databricks: Here’s Who]

Google Cloud’s Q2 Results And Biggest Q3 Launches

Before jumping into the most important things to watch for during Google’s earnings report tomorrow, it’s key to know about some of Google Cloud’s biggest launches over the past three months as well as the results from Q2 2023.

Google Cloud increased year-over-year revenue in Q2 2023 by 28 percent by generating $8 billion in revenue. The Alphabet cloud unit’s sales come from infrastructure and platform services via the Google Cloud Platform (GCP), collaboration tools from Google Workspace, as well as other enterprise cloud services.

At Google Cloud Next in August, the company launched a slew of new products—from a new networking platform and BigQuery Studio to more than a dozen artificial intelligence offerings via Vertex AI and Duet AI. Duet AI was injected into some of Google Cloud’s most popular offerings and Vertex AI received new generative AI capabilities. Additionally, the company also elevated its strategic partnerships in Q3 with AI market leaders like Nvidia.

“We are in an entirely new era of digital transformation, fueled by GenAI,” said Google Cloud CEO Thomas Kurian at Google Cloud Next 2023 in August. “This technology is already improving how businesses operate and how humans interact with one another. It’s changing the way doctors care for patients, the way people communicate, and even the way workers are kept safe on the job. And this is just the beginning.”

Here are the five biggest things to watch for during Google’s earnings report on Tuesday.

Will Google Cloud Remain Profitable?

For years, Google Cloud had been operating at a loss. The company historically generated hundreds of millions of dollars in operating losses every quarter. In 2022, for example, Google Cloud reported a total operating loss of over $1.9 billion for the year.

However, that all changed this year.

For the first time in the company’s history, Google Cloud turned a profit of $191 million in Q1 2023. The company then proved that profitability wasn’t just a fluke by generating operating income of $395 million in the second quarter of 2023. In Q2 2023, Google Cloud improved operating income by nearly $1 billion year over year.

“We continue to invest aggressively while remaining focused on profitable growth,” said Google CFO Ruth Porat during the company’s earnings report in July.

The Takeaway: If Google Cloud reports its third consecutive quarter of profitability, it will become the norm from now on rather than the exception for the company. This means parent company Alphabet will likely be willing to invest more in its cloud business as profits climb.

Google May Unveil A New CFO, Which Would Impact Its Cloud Business

Parent company Google is currently searching for a new CFO who will undoubtedly have an impact on Google Cloud’s future.

Ruth Porat (pictured), Google’s longest-serving CFO, was promoted to a newly created role of president and chief investment officer on Sept. 1.

Google has yet to announce the hiring of a new CFO to take over a job from Porat after her eight-year tenure.

Google unveiled that Porat would be leaving the CFO position during the company’s Q2 earnings report on July 25. Google has been searching for a replacement now for three months. It is possible that the company will announced who the new CFO is during Tuesday’s Q3 earnings report.

The Takeaway: There’s no doubt that Google’s next CFO will have an impact on Google Cloud future. Porat always spoken bullishly about Google Cloud’s future and continued support as CFO even when the cloud company lost $1.9 billion in total operating losses in 2022. For Google Cloud’s sake, the new CFO will hopefully be well versed in cloud and AI.

Insight On Google’s Hiring, Layoff Strategy In Relation To Google Cloud

In January, Google unveiled it would be laying off 12,000 employees. It appears that Google Cloud wasn’t significantly impacted. Earlier this year, Google said it was “meaningfully slowing the pace” of hiring in 2023. The company said it was still investing in onboarding top engineering and technical talent, which boded well for Google Cloud.

“Most evident to date are the actions we have taken to reduce the pace of headcount growth, including the workforce reductions we announced in the first quarter and a slower pace of organic hiring, in part given our focus on reallocating talent from within to fuel our growth priorities,” Porat said in July.

Google laid off hundreds of employees on its recruiting team in September. Just this week, CNBC reported that Google cut dozens of jobs in its news division. However, it is key to note that Google is a gigantic company with more than 160,000 employees globally as of March, and Google Cloud has been hiring some serious top-level talent in recent months, including from AWS.

The Takeaway: It will be interesting to see if CEO Sundar Pichai or any other executives speak about Google’s headcount in Q3. Additionally, if Google leaders say the company is still in a hiring slowdown period as Google Cloud aims to win more market share against the competition in cloud and AI.

Any Generative AI Announcements In Store?

Generative AI has been top of mind for Google Cloud CEO Thomas Kurian and Google CEO Pichai in 2023. The company’s opportunity in AI has been the most discussed topic for Kurian and Pichai in 2023 during quarterly earnings reports as well as during its largest events.

“[AI] will touch every sector, every industry, every business function, and significantly change the way we live and work,” said Pichai on stage at Google Cloud Next 2023 in August. “This isn’t just the future. We are already starting to experience the benefits right now. As a company, we’ve been preparing for this moment for some time.”

Two new AI solutions launched in 2023 worth noting is Google’s next-generation large language model PaLM, and its AI platform Vertex AI. Google recently noted that tens-of-thousands of developers are already leveraging Vertex AI, while PaLM 2 was launched just a few months ago.

The Takeaway: To show Google’s momentum in AI, the company might tout some big customer wins and use cases for generative AI during the earnings call. It will also be interesting to see if Google potentially unveils new AI integrations into some of its products or updated versions of existing offerings as the company likes to constantly tout new AI innovation.

AWS And Microsoft Earnings This Week; Sales Growth Vs. Microsoft And AWS

Google’s two biggest rivals Amazon Web Servies and Microsoft are scheduled to report their quarterly earnings this week.

Microsoft’s earnings report is set for Tuesday at 5:30 p.m. ET, the same day and just one hour later than Google. AWS’ and parent company Amazon are scheduled to report its financial earnings on Thursday at 5:30 p.m. ET.

This means by the end of this week, the three largest cloud computing companies on the planet will have shed light on their financial earnings over the past three months. Although AWS and Microsoft have reported much higher cloud revenue overall, Google Cloud is growing cloud sales faster than its two larger rivals.

In Q2 2023, AWS grew sales 12 percent year over year to $22.1 billion, while Microsoft increase sales by 15 percent year over year to $24 billion. (Microsoft does not provide to the public its Azure sales figures. Instead, Microsoft combines Azure, server product and other cloud services revenue all under its Microsoft’s Intelligent Cloud umbrella.) Google Cloud bested both by increasing cloud sales by 28 percent year over year to $8.03 billion.

The Takeaway: If Google Cloud can once again best AWS and Microsoft in terms of faster cloud sales growth, it will show that the company is on the right track to winning more market share. By the end of this week, the market will know that answer.