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Google Brags About Its Growing Cloud Business. But It’s Still Dwarfed By Amazon

Google’s parent company, Alphabet, says its cloud services business is gaining traction.

The company said on Thursday as part of its second quarter earnings report that its cloud unit, which includes its data center business plus corporate versions of Gmail and Google Docs, has an annual revenue run rate of more than $8 billion. Run rate is a prediction of future financial results based on the most recent revenue.

The news shows progress in a business that Google has been heavily investing in recent years as it aims to take on competitors like Microsoft's Azure and Amazon's AWS.

The latest run rate prediction comes after Google CEO Sundar Pichai declined in the first quarter to disclose financial details about the cloud business. Early last year, Alphabet said its cloud business had a $4 billion annual revenue run rate.

Last year, in an effort to jumpstart its cloud business, Google hired a new leader for the division, Thomas Kurian, former president of Oracle. He's been investing heavily in cloud, including recently buying cloud company Looker for $2.6 billion.

The cloud business accounted for the greatest increase in the number of employees for Alphabet's product areas. Alphabet's workforce totaled 107,646 in the second quarter. Google declined to provide more details.

Whatever the case, the hiring spree is expected to continue. Pichai said on Thursday that the division's sales team would triple over the next few years.

But Google Cloud still faces tough competition from Amazon, which said on Thursday that its cloud unit's annual revenue run rate is $33 billion, nearly four times the size of Google's.

Overall, Alphabet beat Wall Street’s expectations by reporting $38.9 billion in quarterly revenue versus an estimated $38.2 billion. That revenue represents a 19% increase over the same period last year.

Alphabet credited its revenue growth to its search ads business, followed by YouTube, and then its cloud business. The company’s cloud business was said to be the top source of growth in its “other revenues” category, which also includes mobile devices and the Google Play Store. The "other revenue" category grew to $6.18 billion this year from $4.43 billion in the second quarter last year.

Alphabet reported that it had a $9.95 billion quarterly profit, up from $3.2 billion the same quarter a year ago.

The results, plus a promised $25 billion stock buyback, helped to lift Alphabet's stock more than 9% to $1,239.50 per share in after-hours trading.

Cloud CEO Kurian, who took the helm of the unit in November, has been heavily focused” on delivering a competitive advantage in Google’s cloud business, Pichai said on Thursday. Kurian also has been working to expand the executive team that handles consumer-facing operations, like sales and marketing.

In April, Google Cloud hired SAP veteran Robert Enslin to serve as the organization’s president of global customer operations. Then this month, the organization also hired Kirsten Kliphouse, formerly of Red Hat and Microsoft, to serve as its North American sales head.

Google also has been expanding its cloud footprint globally. It announced the opening of a data center in Osaka, Japan in May and plans to open a seventh U.S. facility in Las Vegas. 

Pichai said he’s confident that the company will continue expanding its cloud services, whether that’s through acquisitions or organic growth.