Google parent company Alphabet continues to invest heavily in its quest to figure out the future. In its most recent quarterly earnings report, the company said it incurred a more than $1.3 billion operating loss in its “Other Bets” category, the collection of divisions that includes its experimental X lab, its internet group Access, its LTE balloon initiative Loon, its drone delivery project Wing, and its self-driving car unit Waymo, among other groups focused on health sciences and investment.
It’s not immediately clear where a majority of those losses are coming from. Now that Loon, Waymo, and Wing are all separate businesses that have been spun out of X, costs for each of those companies may be increasing in the short-term as Alphabet encourages them to push toward commercial viability. On an earnings call, Google chief financial officer Ruth Porat pointed to sizable jumps in compensation for Other Bets employees and executives, with the total stock-based compensation now amounting to nearly $500 million for this past quarter.
Regardless, Alphabet’s Other Bets losses had been trending downwards over the last two years or so, reaching a low of $571 million in the first fiscal quarter of 2018. So this uptick is a notable deviation. Back when Alphabet first began breaking out its expenditures in that area, following the massive restructuring that saw the parent company’s creation in August of 2015, Other Bets losses were more than $3.5 billion, so it’s certainly come down in general over the years as some of the units has grown from experimental moonshots to viable businesses with sizable lines of revenue. But it’s clear Alphabet isn’t afraid to spend as it sees necessary to continue building out its futuristic visions.
Last month, Loon announced its first deal with the satellite industry, which will involve licensing a proprietary next-gen networking technology to Canadian telecommunications company Telesat. But few of the other ventures are close to securing similar commercial deals that we know of right now, meaning costs will likely remain high and revenues low for quite some time.
The other division that operates commercially, Access, has begun winding down its slow and costly fiber ambitions in favor of wireless delivery via its Webpass subsidiary. Also not helping the numbers is the fact that, since the second quarter of last year, Alphabet’s Other Bets category lost arguably its biggest moneymaker: smart home company Nest, which rejoined Google in February of 2018.
Regardless, Alphabet isn’t in trouble in the cash department, as Google continues to print money with its online ad business. The company earned more than $39 billion in sales last quarter, with a profit of $8.2 billion. Worrying some investors are Google’s traffic acquisition costs, or the fees it pays companies like Apple to users using Google Search. TAC costs are notably higher on mobile, Porat said on an earnings call this afternoon, resulting in the bump to $7.4 billion from $6.4 billion, or 23 percent of the company’s overall ad revenue.
Still, so long as Google remains a dominant player in the online ad industry, Alphabet can continue to fund its forward-looking projects that it hopes, one day, will result in a business that could be as lucrative as its search engine.