Alphabet pulled back the curtain on Google Cloud's earnings during Monday's fourth quarter earnings report. To date, parent company Alphabet hasn't put an exact number on Google Cloud's contributions to the bottom line, but that changed under Sundar Pichai's first earnings report and conference call as the CEO of both Alphabet and Google.
Alphabet's new "Google Cloud" line item looked to include all of the company's cloud computing business. Google Cloud posted $8.92 billion in revenue for all of 2019 and $2.61 billion for the fourth quarter. In last year's fourth quarter, the company's cloud revenues came in at $1.71 billion for a run rate of $6.84 billion.
Pichai singled out Google Cloud Project (GCP) for the company's growth in public cloud, and the efforts of former Oracle executive Thomas Kurian, who took over as Google Cloud CEO after Diane Greene stepped down from that position in February.
In July, Google's cloud revenue, which included "other" items such as hardware, came in with an annual run rate of $8 billion in the second quarter
"Google Cloud ended 2019 at a more than $10 billion run rate, up 53% year-on-year, driven by significant growth in GCP," Pichai said, according to the Seeking Alpha transcript. "The growth rate of GCP was meaningful higher than that of Cloud overall and GCP’s growth rate accelerated from 2018 to 2019.
We are really pleased with the momentum we are seeing in cloud. Year-on-year, the number of deals over $50 million more than doubled."
Last year, Kurian brought some of his former Oracle colleagues and other additional employees to help sell Google Cloud to enterprises. During Tuesday's earnings call, Alphabet CFO Ruth Porat said that Google Cloud "is on track to triple our sales force in three years, including bringing in a number of senior strategic hires and supplementing it with a channel partnership program."
"We are very confident that there is an enormous opportunity here that plays to our core strengths," Porat said." We're pleased with the growth trajectory of GCP, which we see in customer momentum, the growing size of the average contract, and of course revenues. The traction we’re having with large customers for making multi-year commitments with us is reflected in our backlog, which ended the year at $11.4 billion substantially all of which relates to Google Cloud."
Despite a successful 2019, Google Cloud still trails market leaders Amazon Web Services and Microsoft Azure by a significant margin.
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In its Thursday's fourth quarter earnings report, Amazon Web Services (AWS) reported $9.95 billion in sales, which was a 34% increase compared to the same quarter a year ago.
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Also last week, Microsoft reported that Azure's revenue grew by 62%, which was a sequential increase over 59% in the prior quarter. Microsoft doesn't breakout Azure's revenues.
According to a report by Synergy Research Group (SRG), AWS had 33% of the market share at the end of the fourth quarter followed by Microsoft (18%), Google (8%), IBM (6%), Alibaba (5%), and Salesforce (3%.) After AWS and Azure, Google, Alibaba and Tencent are substantially outpacing overall market growth and are gaining market share, according to Synergy Research Group. All three saw revenues increase by 50% or more year-on-year.
Overall, SRG said fourth quarter spending on cloud infrastructure services increased by $2.8 billion over the previous quarter, which was "by far the biggest quarterly increment the market has seen." At 37% the year-on-year growth rate is slowly trending down, but SRG said that was due to the massive scale of the market that forces growth rates to moderate.
“The year ended with a bang as Amazon and Microsoft both posted big sequential gains in cloud revenues,” said John Dinsdale, a chief analyst at Synergy Research Group, in a statement. “Thanks to these two market leaders and strong growth from some other cloud providers, the 2019 market was over twice the size of the 2017 market.
"Given secular trends in the market we will continue to see strong growth. We will also see a continuing battle for market position between the global giants and smaller cloud providers that have a more focused geographic or service footprint.”