Alphabet, the parent company behind Google, is losing $1.5 billion (£1 billion) per year on its “other bets,” according research firm Pacific Crest.
The umbrella company has businesses in a diverse range of fields beyond Google, including investment (Google Ventures), home automation hardware (Nest), self-driving cars, and “moonshot” ideas (Google X).
Alphabet was first announced in August 2015 and is the majority shareholder of Google. It was created in part to make it clearer what investors were investing in, especially regarding the company’s smaller businesses outside of the core search business.
According to Pacific Crest, only three of these businesses — Nest, Google Fibre (which comes under “Access and Energy”), and Replicant (the robotics business) — generate revenue (but not profit), leading all of the non-Google businesses to a loss of $1.5 billion. (This figure excludes “shared sales, operations, administrative and facilities expenses.”)
Pacific Crest says it uses a mixture of publically available data — such as employee numbers, revenues, and profits — and other sources to create its analysis of Alphabet’s businesses.
Overall, Alphabet reported third quarter revenues of $18 billion (£12 billion) with a profit of $4 billion (£2.3 billion), up from $2.74 billion (£1.8 billion) during the same time period in 2014.
According to Pacific Crest, the total value of the “other bets” is around $22 billion (£14.7 billion). Google’s self-driving car business has an estimated value of $8 billion (£5.4 billion) making it the most valuable non-Google property controlled by Alphabet. Google Ventures, the investment firm, comes in next with a valuation of $7 billion ($4.6 billion). Nest is third, with a valuation of $3 billion (£2 billion), which is what Google paid for the company in 2014.
The estimated aluation of Google Ventures comes from the firm’s large stake in Uber, the ride hailing company. According to Pacific Crest, Google Ventures has a 10% stake in Uber (which is worth up to $68 billion) and multiple other investments, including Medium, the publishing platform, and Nextdoor, the local social network.
Pacific Crest also gives estimated employee numbers for each of the properties. Nest is reportedly the biggest, employing 1,100 people, followed by Google Fibre with 750 employees. These figures are “crucial” to estimating revenues and losses: The employee base “will be the primary expense of the business unit.” Alphabet has 60,000 employees in total.
Over 2015, Google X was responsible for some of the biggest losses within Alphabet, losing $282 million (£190 million), according to Pacific Crest’s calculations. Google X has a myriad of “moonshot” ideas, including Google Glass and Project Loon, the balloons that aim to bring WiFi to remote areas. Google Fibre lost $304 million (£204 million) in 2015, according to the note.
Despite the loss-making businesses, Pacific Crest remains bullish on Alphabet as a company and is raising its stock target from $820 (£550) to $850 (£570) off the back of the “other bet” potential. The stock currently trades at $740 (£496).
Business Insider has reached out to Google to comment on the claims made in the research note. We will update the post when we hear back.
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