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Google’s cloud business is losing money

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Google is providing a deeper look into the financials of its cloud business, and it doesn’t look great.

Google Cloud posted an operating loss of $1.2 billion in the final quarter of 2020, 4% worse than a year earlier, the tech giant reported Tuesday. The unit lost $5.6 billion for the full year, an increase of nearly 21%.

The company’s overall business is doing just fine, however, with a net profit of $15.2 billion — up 43% from the same period last year — on revenues of nearly $57 billion, up 23% and higher than analyst estimates.

Google stock jumped more than 6% in after-hours trading.

While Google mints money from its core search advertising business, the company has been working for years to diversify its revenue through bets on hardware, cloud computing and various ambitious moonshot projects. The cloud, which has proved to be a huge profit driver for rival Amazon, was thought to be among its most promising efforts.

Google’s cloud business is seeing sales grow fast even as losses mount. Revenue from this unit topped $13 billion last year, up from nearly $9 billion in the prior year.

Earlier this week, the company announced a six-year strategic partnership with Ford, part of which makes Google the carmaker’s preferred provider for cloud data storage.

“We’ve obviously been investing aggressively given the substantial market opportunity we see,” Google’s chief financial officer, Ruth Porat, said on an earnings call Tuesday, pointing to “the success Google Cloud is having with large enterprises which are signing meaningful long-term commitment agreements.”

The cloud business’s operating loss “reflects that we have meaningfully built out our organization ahead of revenues,” she added.

US tech giants have further cemented their dominance during the coronavirus pandemic even as economies around the world suffered huge setbacks — Facebook’s $11.2 billion profit last quarter was more than 50% higher compared to the previous year; Microsoft posted record revenues; and Amazon exceeded analysts’ profit expectations by more than $1 billion.

But many of those companies are under intense pressure from regulators that is likely to further intensify in 2021. Google, like Facebook, is facing a massive antitrust lawsuit as well as questions about its role — particularly through video platform YouTube — in spreading misinformation about last year’s US presidential election.

Google is also facing pressure from within, with hundreds of employees forming the company’s first-ever union in early January.

And despite its ever-growing dominance, particularly in areas such as online search and advertising, the company has retreated from several high-profile projects in recent weeks.

On Monday, Google shut down in-house video game development efforts that were part of its Stadia gaming platform, just days after parent company Alphabet said it would wind down an initiative called Loon that used giant balloons to beam internet to people in remote areas around the world.

Article Topic Follows: Money and Business

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