Alphabet, Google’s holding company name, is gradually improving their “other bets” category. Essentially, their other bets companies are those that aren’t Google. Alphabet recently reported their Q4 earnings and paid out dividends to investors, showing the financial progress of their bussiness from October 2016 to December 2016. Google’s overall revenue rose 25%, bringing in $25.8 billion in earnings. This prevents the loses in other bets companies from hurting the holding company.
What Alphabet’s Q4 Earnings Look Like
Alphabet reported their Q4 earnings on January 26, 2017. In the business world, the year is divided into four financial quarters: Q1, Q2, Q3, and Q4. The fourth quarter consists of October, November, and December. Google is their bread and butter. The holding company’s other bets generated $262 million in revenue in Q4. This is a $112 million increase from the fourth financial quarter of 2015. Alphabet’s losses in the other bets category were smaller this past year as well. They recorded a loss of $1.2 billion in Q4 of 2015 and $1.1 billion in Q4 of 2016.
Analysts predicted that shareholders would receive $9.67 per share on $25.22 billion in revenue for the company’s stock in this past financial quarter. It turned out slightly lower, however, at $9.36 per share on revenue of $26.06 billion. The 2.5% drop in Alphabet’s extended trading indicates some investors may doubt that the company is going in the right direction. Investors may also be concerned about the future of Google because ad value has been decreasing.
With the entire year considered, Alphabet’s other bets generated $809 million in revenue in 2016, which was an 82% increase from 2015. Ruth Porat, Alphabet’s CFO, assured that they would continue to
“exercise careful stewardship over the amounts and pace of investments.”
More Background and Future Projections
Some of Alphabet’s other bets companies include Nest, Verily (life science research organization), and Fiber (Internet and television provider). Nest, a home automation platform, is an “other bets” company to keep your eye on because it’s where Alphabet/Google predicts the market is headed. The era of desktop search dominating the search industry is over. Although mobile is king now, Google thinks search will be integrated with the home in the future and wants to position themselves to dominate home search just as they did with desktop traffic.
The amount of losses in Alphabet’s other bets category may shock some people, but the company has always embraced innovation. And to be innovative, you need to take chances. However, Alphabet knows that they still need to keep the company in good financial health in order to have the luxury to experiment with new ideas. Google already brings in a huge chunk of their income, but Alphabet has recently established another company Waymo, a self-driving car unit. Waymo is intended to provide cash flow for the holding company.
TechCrunch calls Alphabet’s performance in 2016 a transition year. They pointed out that Alphabet showed it is more than a search engine advertising business in 2016. Alphabet has been expanding into other industries because they know that depending on search revenue would lead to their downfall. It can’t stay afloat purely by monetizing desktop ads, which has been on the decline. Google’s cost-per-click decreased by 15% in 2016 Q4 compared to 2015 Q4.
What’s Next for Alphabet?
2016 was a good year for Alphabet as they worked on figuring out what comes next to them now that the era of desktop traffic is coming to an end. People aren’t going to stop using Google on their desktop computers, but Alphabet won’t be able to rely on that source of income forever as it slowly declines.
Some fields Alphabet has been experimenting with include virtual reality, voice-enabled interfaces, home automation, and self-driving automobiles. Although Alphabet’s other bets companies currently operate at a loss, as the company continues working on cutting what doesn’t work and improving what does, we’ll continue to watch them climb out of the red.
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