Alphabet’s bets beyond search are starting to pay off

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Google reported mixed earnings for its fourth quarter today — but we’re starting to see some flashes of improvement in its “other bets” category, which is where it stuffs pretty much everything that lives outside of Google proper.

In the fourth quarter, Alphabet’s other bets recorded $262 million in revenue, a healthy jump from $150 million in the fourth quarter a year ago. But more importantly, the company’s losses in the division shrank from the previous year, from $1.2 billion in Q4 2015 to around $1.1 billion in the fourth quarter this year. Google’s other bets consists of products like Nest, and while this represents a tiny fraction of Google’s overall business, it’s important because it represents a lot of the market Google envisions itself occupying in the years to come — and it’s equally important to see strong performance in that category.

CFO Ruth Porat dove into further into the other bets category for the full year, where other bets generated $809 million in 2016, up 82% vs 2015 — which was primarily generated by Nest, Fiber and Verily. The operating loss for the division was $2.9B for the first year 2016, a slight decline from 2015 (Porat didn’t specify there). So even if it’s a slight decline, it looks like things aren’t getting quite out of hand and losses are accelerating as Alphabet enters 2017. Alphabet will “continue to calibrate the magnitude and pace” of its investments in other bets, and “exercise careful stewardship over the amounts and pace of investments,” Porat said.

Alphabet’s other bets in 2016 in particular faced scrutiny. The company sought to trim down a lot of the underperforming segments of Alphabet in order and focus its resources on the operations that were working. Alphabet has for a long time (with Google X) been known as a bit of a playground for new ideas — like balloons and fiber internet — but the company is showing signs that it needs to push forward into areas that it knows best and where it can dominate. That’s included making some aggressive moves like spinning out its self-driving car unit into a new company called Waymo, among others.

 




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