Alphabet’s experimental investments in the future continue to cost it a fortune

Google's parent company, Alphabet, posted second-quarter earnings for 2018 today, beating Wall Street's estimates of revenue and revenue. Despite the historic fine of 5,000 million dollars imposed by the European Union last week, which affected the operating income of Google, Alphabet shares are actually around 3.5 percent in off-hours operations. This reinforces the likelihood that the EU fine will be no more than a costly slap in the long term, provided the fine, which is attractive to Google, does not have a substantial impact on Google's advertising machine.

But one area of ​​Alphabet's business that only gets more turbid is its "Other Bets" category, a line that includes almost all non-Google divisions. The category now houses the Waymo self-management unit and the experimental technology laboratory X, which oversees the Wi-Fi Project Loon initiative and the Project Wing drone delivery unit. Other bets also include Access (focused on connectivity) Access (formerly Google Fiber), Verily and Calico health and life extension units, and other smaller units focused on venture capital investments.

According to its earnings report, Other Bets units generated $ 145 million in revenue in the second quarter, an increase of 33 percent year-over-year. However, the category collectively cost Alphabet $ 732 million in operating losses. Equity-based compensation for this quarter's category totaled $ 127 million, equivalent to almost all quarterly sales in the category. (It could be that the heated competition in the autonomous automobile space is driving the hiring costs in Waymo.)

After a restructuring in February, Nest is now part of Google, while it used to be part of the Other Bets category. The manufacturer of smart home devices was one of the few divisions in Other Bets that really made money, and losing the company to Google itself could negatively affect these numbers in the future.

So, clearly, the company is spending a lot of money on its more experimental projects, and that's nothing new. Alphabet leadership has exposed in the past how it views these efforts as a way to explore the future and find the next multi-billion dollar business. Occasionally, this involved costly investments in spaces that were not worth the time, effort and resources, such as fiber Internet.

For example, after layoffs and numerous leadership changes, Google Fiber is now studying wireless transmission for its Internet business in partnership with its subsidiary Webpass. With divisions such as CapitalG and Google Ventures, Alphabet is investing in growing businesses, with an eventual payment that may not occur for years.

Still, it seems that the costs of the Other Bets category are increasing, and Alphabet could soon lose $ 1 billion every three months just to keep all divisions running. If Waymo ends up providing the brains for the self-directed future of the entire automotive industry, just as Android became the de facto operating system of smartphones, that could represent a great victory for Alphabet and generate massive license revenues. And it is not known what progress Verily or Calico could bring to the health industry, where solutions for disease prevention and life extension could reap unprecedented benefits.

But, for now, Alphabet keeps reducing the chips, and it seems that it will have to wait a long time to see what bets they will pay.

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