Moonshot Cuts Are Turning Alphabet Back Into Internet BusinessBy
Spending on Other Bets slumps to lowest level since late 2014
Fiber broadband unit is the source of the biggest cutbacks
After years trying to build ambitious "moonshots" outside its main business, Alphabet Inc. spending cuts are turning the company back into an internet operation.
Alphabet easily beat analysts’ third-quarter profit estimates on Thursday on strong revenue growth but also lower costs at its Other Bets division, which houses the company’s moonshots.
Chief Financial Officer Ruth Porat had much to brag about when discussing the riskier projects during a conference call following the results. Waymo self-driving cars are testing in Detroit. Its high-altitude Loon balloons are beaming internet service over Puerto Rico, and Nest unveiled new smart-home gadgets.
But Alphabet has also slashed spending on some of these projects. Other Bets capital expenditures during the third quarter totaled $77 million, an all-time low since late 2014 (as far back as Alphabet discloses these numbers).
That $77 million covered spending on Waymo, Loon, drones, robots, airborne energy kites, two health-care efforts, the Fiber broadband internet business, the X research lab, and Sidewalk Labs, which is building a digital city in Toronto. A year ago, Alphabet spent $324 million on these efforts. The main source of the cutbacks in the latest quarter was Fiber, Porat said.
Google started looking beyond its internet advertising business almost a decade ago when the self-driving car project launched. The goal was to find new sources of revenue that could keep the company thriving decades into the future. Since Porat joined in 2015, she imposed stricter financial targets on these moonshots, while funneling more investment into Google.
In the third quarter, Alphabet spent $3.56 billion on Google, the most since late 2014 and up from $2.4 billion a year ago. That money is funding development of artificial intelligence, along with new consumer hardware and cloud businesses.
The switch suggests Alphabet sees more opportunity in the internet than it did a decade ago when those moonshots were just getting started.