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Google: Cloud Computing Is Still a Prime Investment Target

Carol Wilson
10/25/2018

Google continues to invest heavily and confidently in its Google Cloud platform, including in acquiring talent, as it remains a solid number three among the top four cloud players. That investment growth isn't changing any time soon, executives said in today's earnings call.

Ruth Porat, CFO for Alphabet Inc. and Google (Nasdaq: GOOG) told analysts that Google's 26% increase in operating expenses was based in part on a 5,314 increase in number of employees, most of whom engineers and product managers. "In terms of product areas, the most sizable headcount increases were in cloud for both technical and sales roles," Porat noted.

While ranked globally behind dominant market leader Amazon Web Services and Microsoft, except in APCA where it also trails Alibaba, according to Synergy Research Group, Google leads the industry in investments, according to SRG's most recent assessment. That includes talent but also continued capex spending on data centers, as Porat noted.

Google CEO Sundar Pichai told analysts he is seeing the investments pay off in increased customer wins in competitive situations, although he didn't cite specifics.

"But from our perspective, it doesn't look like a zero-sum game," Pichai added. "There is a large market opportunity here, and it seems like very early days. More importantly, we believe we are aligned with where the market is headed in the long run," meaning support for an open architecture that doesn't lock enterprises in and allows for support of multi-cloud environments. "The market has settled in that direction as well, which gives us a lot of comfort."

On the go-to-market side, Google is investing in both direct sales and in partnerships and that strategy is beginning to work, Pichai said. The company is using partners as one way to get around its lack of an on-premises play which other cloud providers do deliver.

"In this business, you do have wins, but those accounts turn into larger revenue deals over time, and that's why we are laying the foundation and getting strong early momentum that will pay off over time," he added.

Of course, only in Alphabet/Google land does a company post a 21% increase in revenues and exceed analyst expectations on earnings per share by almost three dollars and still see its stock fall. The overall revenue results of $33.7 billion fell just shy of analyst consensus expectations of $34 billion and that led Google's stock to trade down about three percent in after-hours trading.

There was very little said about Google Fiber, still part of Alphabet's "Other Bets" sector. The focus there was on Waymo, which is expanding its early rider program.

Pichai also chose to focus on Google's expanded use of artificial intelligence across its platforms, saying the company had a unique approach to combining hardware, software and AI that would benefit consumers, particularly in its new hardware products which include Google Home Hub, Google Pixel 3 and Google Pixel Slate.

— Carol Wilson, Editor-at-Large, Light Reading

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