Continuing to bank on the generational shift to digital, Google’s parent Alphabet reported revenues of $55.3 billion, a 34% jump from the same period last year, and a record-breaking profit of $18 billion for the first quarter of 2021.
As usual, Google’s ad revenues take up the lion’s share thanks to an increase in brands’ ad spends to leverage the steady growth in consumer online activity, but other segments noted significant improvements as well.
Google Cloud records higher revenue and lower losses
Google began reporting Cloud as a separate segment last quarter to underscore its importance in the company’s future. Google Cloud Platform (GCP) and Google Workspace fall under this segment.
Improved top line and bottom line: This quarter the company revealed that losses were less than $1 billion on revenue over $4 billion, a significant improvement compared to previous quarters where losses were well over a billion and revenues less than $4 billion. Revenue from Cloud saw a 46% increase year-over-year. Sundar Pichai, Alphabet CEO, stated that the growth rate of the company’s cloud platform is well above the growth rate for Cloud overall.
We continue to unlock the value of the Google ecosystem by signing multi-year multi-product partnerships with companies like Global Payments and Grupo Globo. And just yesterday, we announced a new Googlewide partnership with Univision, which is migrating to our Cloud, continuing to distribute content on YouTube and reaching customers via Play and Ads – Pichai
Market scenario: The worldwide end-user spending on public cloud services is forecast to grow 18.4% in 2021, according to Gartner. A large part of this growth will come in the wake of the pandemic, which has accelerated the move to cloud. Microsoft, which does not provide Azure revenue numbers, revealed yesterday that its cloud business grew 50% faster compared to a year ago. Amazon, the market leader with over 30% market share, will announce Q1 earnings results later today. AWS revenue for Q4 2020 was $12.7 billion.
AI and ML are differentiators: Pichai credited Google Cloud growth to the company’s expertise in real-time data, analytics, AI, and ML, which he said are differentiators compared to rivals. In response to an analyst question on how Google will sustain this advantage as competitors are beginning to focus on the same capabilities, Pichai said that Google is one of the largest R&D investors in AI in the world and it is thinking ahead of rivals and implementing its technologies across all layers of the stack.
Pichai also mentioned three market trends that are shaping Google growth and strategy in this segment: 1) strong customer momentum in the Data Cloud, 2) customers wanting robust infrastructure cloud, and 3) innovative solutions to enable hybrid work in Google Workspace.
Aggressive investment will continue: Google Chief Financial Officer Ruth Porat said that the company’s focus with Cloud is revenue growth and it will invest aggressively to build the cloud organization for long-term performance. He also noted that operating losses and operating margin will benefit from increased scale over time.
Shopping on Google
While Google is not a direct player in the e-commerce space, it has been increasing its focus on making the shopping experience on its platforms better. “We’ve long said that we want to make Google the best place for users to start their shopping journeys, regardless of where those journeys end,” Schindler said during the earnings call last quarter. To this end, Google has been taking significant steps to accelerate online retail by making it easier for businesses of all sizes to move online. They made product listings free, removed commission fees and opened the shopping platform to Shopify and PayPal.
“Over the last six months, people’s shopping preferences have shifted constantly in response to changing conditions. It’s not just online, it’s not just offline, it’s a mix,” Schindler noted during the call. He further revealed that the surge in searches for “available near me” and “curbside pickup” from last quarter continues into this quarter and searches for local and businesses are up 80% versus last year.
Take Dick’s Sporting Goods. Throughout the pandemic, they accelerated curbside pickup, pickup in-store and ship-from-store fulfillment options in Search. This approach contributed to 100% year-over-year increase in e-commerce sales in 2020. And just recently, they activated YouTube to build awareness for new store concepts. – Schindler
YouTube Shorts and the new Violative View Rate metric
The stay-at-home measures owing to the pandemic continues to be a boon for YouTube, helping it rake in $6.01 billion in ad revenue this quarter, a 49% rise from a year ago. During the earnings call, Pichai pointed to an Ipsos survey which revealed that 77% of respondents used YouTube in 2020 to learn a new skill.
YouTube Shorts: Google mentioned last quarter that it is focusing on two important trends – live video and short-form video. Its focus is showing results as YouTube Shorts gained significant popularity, reporting over 6.5 billion daily views this March, up from 3.5 billion at the end of 2020.
Violative View Rate metric: YouTube’s new metric that provides an estimate of what percentage of views on YouTube come from content that violates its policies will be added to transparency reports going forward. In the last quarter of 2020, the Violative View Rate was between 16 and 18 views out of every 10,000 views, which is 70% less than the same quarter in 2017. Pichai attributed this improvement to Google’s investments in machine learning.
Financial highlights — Q1 FY21
- Revenue stood at US$55.3 billion, up 34% YoY.
- Operating income stood at US$16.4 billion
- Net income was $17.9 billion, up from $6.8 billion Q1 FY20
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