Climateer Investing: "What The Future Holds For Google's 'Other Bets'" (GOOG)

Friday, February 16, 2024

"What The Future Holds For Google's 'Other Bets'" (GOOG)

We haven't heard much from X, formerly Google X, not to be mistaken for the other X.

Some possibly less confusing links below.

From Investor's Business Daily, February 16:

Google is known for making big bets, from self-driving cars to home security to health care. But parent company Alphabet (GOOGL) is scrutinizing these expensive moonshots, which Google designates as "Other Bets." And this could be good news for Google stock.
The tech giant has piled up billions in operating losses from these ventures. As Google appears to double down on key areas like artificial intelligence, the company is recalibrating. It's pulling back from bold new projects with fuzzy revenue potential while focusing on initiatives that could bring more value.

"They may be looking to spin off some of these assets," Evercore ISI analyst Mark Mahaney told Investor's Business Daily. "This may be a great capital markets challenge for Google. How do you take these assets and spin them off while getting an appropriate value for Google?"
Mounting Losses Hit Google Stock
According to Visible Alpha data, Google's Other Bets piled up $37.3 billion in operating losses since 2014 on revenue of just $7.3 billion. For Google, the good news is that financial results improved in 2023. Other Bets reported an operating loss of $4.1 billion last year on revenue of $1.5 billion.
Deep-pocketed Alphabet has been able to put up with the losses. Its 2023 revenue rose 9% to $307.4 billion while operating income rose 12% to $84.29 billion.
But as Google ramps up investments in critical areas like artificial intelligence to support its core digital advertising business, the company now is scaling back its pursuit of bold new projects.
At the center of Google's efforts to spin out more projects as independent companies is Ruth Porat, its former chief financial officer. Google last year named Porat, a former Morgan Stanley technology investment banker, as the company's president and chief investment officer. Her new duties include overseeing Other Bets and the 'X moonshot factory,' as the company calls its division focused on innovations.

Spinning off the Other Bets in an efficient way could benefit Google stock by allowing the company to share in potential growth without shouldering all of the expenses, Evercore ISI analyst Mahaney said. Google would likely retain an ownership stake in the new company.

"Accessing capital markets is part of Porat's background," Evercore ISI analyst Mahaney said.
Waymo And Google Fiber Future
Google's Other Bets cover a range of markets. The company has invested in a broadband business, Google Fiber, as well as life sciences company Verily.
Google is also a backer of self-driving cars trailblazer Waymo and industrial robotics software company Intrinsic. Its projects at the X moonshot factory include supply chain sensor developer Chorus, electric grid firm Tapestry, drug developer Isomorphic Labs and ocean protection organization Tidal.

"Alphabet is seeking to streamline both its internal R&D efforts and its investments in new technologies so that they have clearer revenue potential," Insider Intelligence analyst Jacob Bourne told Investor's Business Daily.

On Google's fourth-quarter analyst call, Porat said: "With regard to Other Bets, we've been working to sharpen our investment focus while capturing the upside, given compelling technology breakthroughs across the portfolio. For example, Alphabet's X has announced that it would be moving to spin out more projects as independent companies through external capital, giving X the opportunity to bring more focus to the breakthrough technologies it is working on to address some of the world's most pressing challenges."
'More Possible Growth Paths' For Google Other Bets....