Google Q4 Earnings Preview: Layoffs, Google Cloud And AI

Here are the most important things to watch for during Google’s fourth quarter 2022 financial earnings results on Thursday around layoffs, artificial intelligence and Google Cloud momentum.

What will Google CEO Sundar Pichai reveal about his company’s 12,000 layoffs currently underway?

How much of an operating loss did Google Cloud take during fourth quarter 2022? Does Google have an artificial intelligent surprise in store?

These questions and more will likely be answered during Google’s fourth quarter 2022 financial earnings results set for Feb. 2 at 4:30 p.m. ET when Pichai and other Google executives will field questions from analysts.

Google Cloud Earnings, Layoffs

Google’s fast-growing cloud business Google Cloud will be top of mind during the company’s earnings report on Thursday. The Mountain View, Calif.-based cloud company is one of Google’s most strategic technology assets alongside its artificial intelligence business.

For third quarter 2022, Google Cloud generated $6.9 billion in sales, up 38 percent from $5 billion in third quarter 2021—meaning the company’s annual run rate is roughly $27 billion.

However, top of mind for customers, partners and investors on Thursday’s call will be Google’s recent decision to lay off 12,000 employees worldwide.

Unlike other layoffs at large technology conglomerates and cloud competitors, such as Microsoft and Amazon, Google’s job cuts appear to have affected some of its technology professionals and veterans— such as Chris DiBona, an 18-year Google executive who was senior director of Google’s open source business; as well as Cat Allman, a 15-year Google executive who was recently let go of her position as program manager of Developer Ecosystems.

On Jan. 20 in a blog post to employees announcing the 12,000 layoffs, Google’s CEO said he’s confident about the “huge opportunity” ahead thanks to its products, services and investments in artificial intelligence.

“To fully capture it, we’ll need to make tough choices. So, we’ve undertaken a rigorous review across product areas and functions to ensure that our people and roles are aligned with our highest priorities as a company,” said Pichai. “The roles we’re eliminating reflect the outcome of that review.”

CRN breaks down the four most important things to watch for during Google’s earnings report on Thursday around AI, Google Cloud and layoffs.

Much More Information Needed On Google’s 12,000 Layoffs

Unlike Amazon’s 18,000 layoff round last month that effected mostly retail and HR positions unrelated to technology, Google’s 12,000 layoffs are impacting technology professionals.

Google’s CEO recently said the layoffs will “cut across Alphabet, product areas, functions, levels and regions.”

There have been reports of a hit on Google employee moral with this round of layoffs, which didn’t specifically focus on laying off new hires in non-critical innovation areas, but included eliminations of some key roles and leaders.

In fact, Google termination of 6 percent of its global workforce included many software engineers, user experience (UX) professionals and workers at Google Cloud, CRN learned.

“As an almost 25-year-old company, we’re bound to go through difficult economic cycles,” Pichai recently said. “These are important moments to sharpen our focus, reengineer our cost base, and direct our talent and capital to our highest priorities.”

What To Watch For: Sundar Pichai should step up to the plate during Google’s earnings on Thursday and discuss the 12,000 layoffs in more details with an explanation of why employees at Google Cloud were let go. If it has something to do with simple profitability numbers, let it be known.

How Much Will Google Cloud’s Operating Loss Be?

Google Cloud has yet to generate a profit.

Parent company Google has poured billions of dollars each year into Google Cloud in order to rapidly growth its customer base, R&D innovation and global market reach, including building new data centers and cloud regions across the globe.

Google Cloud is growing revenue at a furious pace, increasing sales by 38 percent year over year to $6.9 billion during its most recent third quarter 2022—faster than both Microsoft and Amazon Web Services.

However, the $27 billion cloud company has reported large operational losses quarter after quarter.

Google Cloud’s operating income for its third quarter 2022 was a loss of $699 million. In second-quarter 2022, the company reported an operating loss of $858 million. During Google Cloud’s first-quarter 2022, the company had an operating loss of $931 million.

What To Watch For: Google Cloud’s operating loss has been shrinking quarter after quarter. If Google Cloud wants to be on pace to generate a profit by 2024, it will need to report an operating loss much lower than $699 million for fourth quarter 2022.

Will There Be A Big Google AI Announcement

Google is laser-focused on driving artificial intelligence innovation and new customer wins. In fact, when announcing Google’s 12,000 layoffs the company’s leader highlighted AI as the future in several instances.

“Pivoting the company to be AI-first years ago led to groundbreaking advances across our businesses and the whole industry,” said CEO Pichai in his blog post announcing the layoffs.

Pichai also teased that some big announcements could be coming soon.

“Thanks to those early [AI] investments, Google’s products are better than ever. And we’re getting ready to share some entirely new experiences for users, developers and businesses,” said Pichai on Jan. 20. “We have a substantial opportunity in front of us with AI across our products and are prepared to approach it boldly and responsibly.”

Google is in competition with Microsoft on the AI front.

Microsoft is grabbing headlines for its massive investment and partnership with OpenAI, whose AI chatbot ChatGPT is one of the hottest topics in the industry.

What To Watch For: Google teased it will be sharing some new AI news that will help employees across the company. With Microsoft-backed ChatGPT on everyone’s mind, it will be interesting to see if Google unveils a competing AI product or something that will grab headlines during its earnings call.

Google Cloud Revenue; Wall Street Estimates Roughly $7.3 billion

Wall Street analysts are estimating Google Cloud generated total sales of roughly $7.3 billion during fourth quarter 2022. This would represent a revenue growth increase of just over 30 percent year over year.

Comparatively, this would be a greater growth increase compared to Microsoft’s Intelligent Cloud segment, which includes Microsoft Azure, that increased 24 percent to $21.5 billion during the company’s second fiscal quarter which ended Dec. 31, 2022.

If Google Cloud is able to hit the $7.3 billion sales mark, it would make Google Cloud’s annual run rate nearly $30 billion.

In fourth quarter 2021, Google Cloud generated $5.54 billion in total sales, an increase of 45 percent year over year. Analysts believe fourth quarter 2022 growth won’t match that pace.

Looking at Google Cloud’s most recent third quarter 2022, the company generated $6.9 billion in sales, an increase of 38 percent year over year.

What To Watch For: Although Google Cloud isn’t growing as fast as it once was, a 30 percent revenue growth rate is a good pace during uncertain economic times. Keep an eye out for whether Google Cloud revenues comes below or above the 30 percent growth mark.