Google Cloud is spending big to hire the right salespeople and developers, but analysts say the bet could pay off by making it more competitive with Amazon and Microsoft (GOOG, GOOGL)

Google Cloud CEO Thomas Kurian at Google Cloud Next 2019

On Monday, Google Cloud reported that it generated $2.6 billion in revenue this past quarter, and $8.9 billion across all of 2019.
Analysts estimate that Google Cloud is on its way to closing the gap with its rivals Amazon Web Services and Microsoft, and one even guesses that the unit's revenue will surpass $19 billion in 2021.
Google Cloud is spending big as it hustles to close that gap: Sundar Pichai, CEO of Google parent company Alphabet, said that the company is hiring senior staff and growing its partnership program.
Analysts say these investments will pay off in the long term and make Google Cloud more competitive.
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Google Cloud reported revenue figures for the first time ever on Monday, and while it still trails behind its rivals Amazon Web Services and Microsoft, analysts say it's quickly becoming a key part of Google's overall business as it brings in bigger deals.

Google Cloud reported that in its most recent quarter, it generated $2.6 billion in revenue. The same period of 2018 saw it rake in $1.7 billion, which means that Google Cloud's revenue grew 53% year-over-year. For the entire year, Google Cloud generated $8.9 billion in revenue, compared to $5.98 billion in 2018 – also a 53% increase.

BMO Capital Markets managing director Dan Salmon estimates that Google Cloud's annual revenue can reach over $19 billion by 2021. That's still not as high as the dominant AWS, which raked in $35 million in revenue last year, but it would represent a major stepping stone on the path.

In the interim, Wedbush Securities managing director Daniel Ives says that Google Cloud's first-ever financials are a promising sign that Thomas Kurian, who took over as CEO of the business a year ago, is on the right track.

"They were stronger than we and many on the street were expecting the cloud number," Ives told Business Insider. "I think it shows that they're a real player on this cloud ship. Microsoft and Amazon are the clear leaders but if you look at the numbers it gives Kurian that much more credibility as they build out their cloud initiatives over the coming years."

On the subject of building out, though, analysts note that Google Cloud has some investments to make along the way. First and foremost, Google Cloud's acquisition of data analytics company Looker has yet to close. Even then, though, Google Cloud has to live up to its goal of hiring the right people to chase its strategy.

How Google is planning to get ahead

Although Google overall missed Wall Street's expectations on revenue, analysts are optimistic about Google Cloud's potential. That's because of the investments Google Cloud is making, which they say are having an overall impact on Google's margins.

Mizuho Securities managing director James Lee said that Google Cloud showed "strong momentum," though its margins were somewhat of a disappointment thanks to expenditures on "products and headcount."

On that note, Google CEO Sundar Pichai said on the earnings call on Monday that Google Cloud is on track to triple its sales force, including hiring senior staff and growing its partnership program.

And as Business Insider previously reported, Google Cloud has created a new program to hire senior sales people to manage its biggest customers, and it took a step in deepening ties in partners by inviting them to its internal sales conference for the first time. The company credits some of its momentum to its early success in those initiatives.

"We are building out our go to market capabilities, executing against our product road map, focused on 21 markets and six industries," Google CFO Ruth Porat said on the earnings call. "We are investing heavily given the opportunity we see and momentum we're having."

So far, Porat says that Google Cloud's growth is driven by its data and analytics products, as well as its infrastructure offerings. The company also saw increased uptake in its G Suite productivity tools and its new product Anthos, which allows companies to run their applications on Google Cloud, their own private data centers, and even rival clouds.

"Cloud is clearly an area where we're investing aggressively," Porat said on the earnings call.

Google Cloud still needs to make headway to catch up to Amazon and Microsoft. However, Ives says Google Cloud isn't resting on its laurels now that its revenue is out there, and that these investments could result in a stronger competitive position for the company in the cloud wars.

"What it shows is that this is a shot across the bow at Microsoft and Amazon," Ives said. "Google is not just going to be a third player. They have a product portfolio and a strategy where they're looking to gain sufficient share. This number was really the unveiling of the curtains in the Google Cloud initiatives."

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