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Alphabet Loses $859M on 'Moonshots' in 2Q 2016

189 pointsby zeddiealmost 9 years ago

44 comments

zarothalmost 9 years ago
I don&#x27;t think it&#x27;s right to equate R&amp;D spending with &quot;losses&quot;. Google makes a profit, not a loss, so technically it does not have losses. It has expenses, and among those, investments in future technology.<p>If all Google could do with their cash flow was pay a dividend, that would be very sad, and it would call for a much lower P&#x2F;E ratio. This article completely misstates the facts.<p>Perhaps the way they break out their financial statements is confusing to someone without an accounting degree. Just because &quot;Other Bets&quot; is negative, a growing negative number in this case is a good thing. This is showing Google has more free cash to invest in growth and has good ideas they believe in and want to pursue. I would be worried if instead they were stockpiling cash. You would then have to ask, why can&#x27;t they put it to work effectively?<p>Of course, everything they do that is making money is no longer an &quot;Other Bet&quot; by definition.
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noahmbarralmost 9 years ago
Google&#x27;s S-1 April 24, 2004 <a href="https:&#x2F;&#x2F;www.sec.gov&#x2F;Archives&#x2F;edgar&#x2F;data&#x2F;1288776&#x2F;000119312504073639&#x2F;ds1.htm" rel="nofollow">https:&#x2F;&#x2F;www.sec.gov&#x2F;Archives&#x2F;edgar&#x2F;data&#x2F;1288776&#x2F;000119312504...</a>:<p>RISK VS REWARD IN THE LONG RUN<p>Our business environment changes rapidly and needs long term investment. We will not hesitate to place major bets on promising new opportunities.<p>We will not shy away from high-risk, high-reward projects because of short term earnings pressure. Some of our past bets have gone extraordinarily well, and others have not. Because we recognize the pursuit of such projects as the key to our long term success, we will continue to seek them out. For example, we would fund projects that have a 10% chance of earning a billion dollars over the long term. Do not be surprised if we place smaller bets in areas that seem very speculative or even strange. As the ratio of reward to risk increases, we will accept projects further outside our normal areas, especially when the initial investment is small.<p>We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner. For example, AdSense for content and Google News were both prototyped in “20% time.” Most risky projects fizzle, often teaching us something. Others succeed and become attractive businesses.<p>We may have quarter-to-quarter volatility as we realize losses on some new projects and gains on others. If we accept this, we can all maximize value in the long term. Even though we are excited about risky projects, we expect to devote the vast majority of our resources to our main businesses, especially since most people naturally gravitate toward incremental improvements.
askafriendalmost 9 years ago
I don&#x27;t see anything wrong with this approach, especially since the company can actually sustainably afford to keep placing these bets.<p>And perhaps &quot;bet&quot; is the wrong word being used here. Usually with a bet in gambling terms, you either win big or you lose it all.<p>When Alphabet tries a &quot;moonshot&quot;, they come away learning a lot about whatever problem it is that they were trying to tackle. They build expertise in-house, and they flex the idea muscle within the company. That isn&#x27;t zero-value activity. In fact it&#x27;s <i>very</i> valuable.<p>$1B a year is a small price to pay for what could eventually spurn a sustainable $10B per year or $40B per year business in the future (self-driving cars, for example).<p>Now this is just me being optimistic. It could also very well be the case that the X division is horribly mismanaged and the moonshots fail for more nefarious reasons, but I&#x27;m willing to give Google the benefit of the doubt.
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aresantalmost 9 years ago
This article makes it sound like Google frittered away $1b on the &quot;X&quot; lab last quarter.<p>X lab includes self driving car, Goog Glass, Project Tango (editorializing here but Tango is badass!), more crazier bets (1)<p>Ok, some crazy stuff there - pretty pretty risky.<p>Wow $1b last quarter for that stuff.<p>Geez corporate responsibility grumble grumble, stupid silicon valley assholes snark snark.<p>But wait, spend 30 seconds doing research and in reality the $859m headline is actually referring to Alphabet&#x27;s line item &quot;Other Bets&quot;<p>&quot;Other Bets&quot; includes Nest, Google Fiber, Google Ventures, and Verily among others(2)<p>Nest = iot + Tony Fadell (pre fallout) looked like a damn good way to beat Apple to a new important consumer market. Still holding out hope.<p>Google Fiber = fast speed is fundamental to Google&#x27;s biz, heck they could probably look at this as CapEx. Please come to my &#x27;hood!<p>Google Ventures = bought $258m of Uber stock @ $3.6b valuation. What&#x27;s that a 20x so far? Pays for entire fund&#x27;s lifetime by several multiples? Lots of other follow-rounds that make sense (3)<p>Verily = profitable healthcare division. (4)<p>So come on NYT spend 5 mins getting the story straight instead of writing a lazy click bait headline.<p>(1) <a href="https:&#x2F;&#x2F;www.solveforx.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.solveforx.com&#x2F;</a><p>(2) <a href="https:&#x2F;&#x2F;www.engadget.com&#x2F;2016&#x2F;02&#x2F;01&#x2F;google-alphabet-q4-2015-earnings&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.engadget.com&#x2F;2016&#x2F;02&#x2F;01&#x2F;google-alphabet-q4-2015-...</a><p>(3) <a href="https:&#x2F;&#x2F;techcrunch.com&#x2F;2013&#x2F;08&#x2F;22&#x2F;google-ventures-puts-258m-into-uber-its-largest-deal-ever&#x2F;" rel="nofollow">https:&#x2F;&#x2F;techcrunch.com&#x2F;2013&#x2F;08&#x2F;22&#x2F;google-ventures-puts-258m-...</a><p>(4) <a href="http:&#x2F;&#x2F;www.recode.net&#x2F;2016&#x2F;4&#x2F;13&#x2F;11586102&#x2F;verily-alphabet-profitable" rel="nofollow">http:&#x2F;&#x2F;www.recode.net&#x2F;2016&#x2F;4&#x2F;13&#x2F;11586102&#x2F;verily-alphabet-pro...</a>
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w1ntermutealmost 9 years ago
There was an HN discussion earlier this week on Google X[0]. One important point made there, by snarf:<p>&gt; Google X is mainly about the PR value around its image and recruiting&#x2F;locking up talent. Google would rather have smart people locked up inside the company working on projects with a high probability of going nowhere rather than having them going to a competitor, or worse, creating the next major competitor.<p>0: <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=12150812" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=12150812</a>
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mfavalmost 9 years ago
Subtly dishonest journalism in my opinion.<p>This article could just as easily be titled &quot;Alphabet invests $859M on long-term projects&quot;.<p>In fact, that would be a more accurate title since that is precisely Google&#x27;s intent.
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tyrealmost 9 years ago
&gt; The cost for the Mercury, Gemini and Apollo programs was more than $25 billion at the time more like $110 billion in today&#x27;s world.[1]<p>Moonshots are expensive. Doesn&#x27;t mean they aren&#x27;t worth it.<p>[1]: <a href="http:&#x2F;&#x2F;news.utexas.edu&#x2F;2014&#x2F;07&#x2F;21&#x2F;anniversary-shows-us-that-nasa-and-space-exploration-are-worth-their-costs" rel="nofollow">http:&#x2F;&#x2F;news.utexas.edu&#x2F;2014&#x2F;07&#x2F;21&#x2F;anniversary-shows-us-that-...</a>
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lpolovetsalmost 9 years ago
This is simply how moonshots work. You lose $50m 99 times in a row, then make $50b on the 100th time. (This is also very similar to how venture capital economics work.)<p>I think it&#x27;s wonderful that Google pursues moonshots and that they have the cash flow to keep Wall Street investors from freaking out. I&#x27;m confident that one (or more) of their experiments will eventually make a huge impact on people around the world.
323454almost 9 years ago
&quot;NASA loses $25.4B on &#x27;Moonshots&#x27;&quot; - New York Times headline from July 29 1973
zamalekalmost 9 years ago
&gt; The money that Google spent on areas that have little to do with internet search and advertising used to frustrate investors who wanted to see bigger profits.<p>&quot;Dear Hen, the process of laying eggs is too expensive and should be eliminated. Furthermore, we&#x27;re expecting a 5% increase in golden eggs by the end of the year.&quot;
chaostheoryalmost 9 years ago
Wall Street is short sighted and regularly see things by the quarter. Its long term outlook tends to be a year give or take. Alphabet needs more forward thinking investors who can see a payout that may not happen for a decade or more. While it has cool projects, the problem with X is that it doesn&#x27;t seem to have a clear mission &#x2F; message like SpaceX and Tesla where you are investing for more than just a profit. I could be wrong but they have a marketing &#x2F; PR problem (in addition their other pre-exisiting ones).
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redthrowawayalmost 9 years ago
Google seems to be actively attempting to avoid the trap that Apple, Microsoft, Facebook, etc have fallen into. When you completely dominate a market, it can be tempting to optimize and be the best at serving that market. But the nature of tech is such that markets have a short lifespan. New innovations are constantly overturning old monopolies--just ask Microsoft. By investing heavily in high-risk, high-reward prospects, Google is insulating itself against future disruption.<p>If the display ad market collapsed 5 years from now, Google&#x27;s investment in AI, self-driving cars, AR, robotics, etc. might be the difference between continued dominance and irrelevance. Tech companies rest on their laurels at their own peril.
ChuckMcMalmost 9 years ago
Interesting take on it, I would probably write the headline &quot;Alphabet spends nearly $1B trying to find new businesses&quot;. Using the New York times logic nearly $15.3B was lost last quarter by startups[1] :-) But setting aside that Google&#x27;s spending as much as 6% of the existing startup ecosystem, they are still not spending a material amount of their free cash flow of nearly $7B last quarter.<p>And I wonder Why not?<p>[1] <a href="http:&#x2F;&#x2F;nvca.org&#x2F;pressreleases&#x2F;15-3-billion-venture-capital-deployed-startup-ecosystem-second-quarter-according-moneytree-report&#x2F;" rel="nofollow">http:&#x2F;&#x2F;nvca.org&#x2F;pressreleases&#x2F;15-3-billion-venture-capital-d...</a>
zaidfalmost 9 years ago
&quot;Moonshot&quot; is the Google term for R&amp;D.<p>Google&#x27;s R&amp;D budget in 2014 wasn&#x27;t even in the top 5: <a href="http:&#x2F;&#x2F;www.neowin.net&#x2F;images&#x2F;uploaded&#x2F;2014&#x2F;12&#x2F;screen_shot_2014-12-03_at_9.28.59_pm_story.jpg" rel="nofollow">http:&#x2F;&#x2F;www.neowin.net&#x2F;images&#x2F;uploaded&#x2F;2014&#x2F;12&#x2F;screen_shot_20...</a><p>Problem for Google might be that Wall Street may look at a word like &quot;moonshot&quot; and basically associate it with wasting money whereas if you call the same things R&amp;D, it&#x27;s something companies have been showing as an &quot;investment&quot;(not loss) for decades.
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unfortunatefacealmost 9 years ago
I am encouraged by this advertising companies attempts at designing cars.<p>The moonshot program seems to me to be either Google cementing it&#x27;s position forever in the knowledge economy or a desperate scrabble for another hit.<p>If the latter is true, then I have hope for the future. It means that the giants - Google (+ Youtube), Amazon, Facebook - can fall. They are not on as strong a footing as it seems.<p>All it takes is...<p>- One generation of kids to decide to eschew Facebook (or any product it buys)<p>- Ad revenue declining or another viable internet business model to rise up and replace it<p>- More efficient &#x2F; free marketplaces
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eric-hualmost 9 years ago
This article highlights the myopia of public investment. Other comments have mentioned the self driving car. That&#x27;s a work still in progress, and likely has been a net loss quarter over quarter.<p>Highlighting the research arm&#x27;s quarterly losses is like setting an FM radio to 10 Mhz* and then declaring there&#x27;s nothing on air.<p>* FM Radio bands start around 80 Mhz in the modern world.
hackaflockaalmost 9 years ago
All of humanity is going to benefit from these moonshots.<p>Sometimes, the original intent of a research program doesn&#x27;t come to fruition, but there are a lot of downstream benefits and innovations that can be traced to the so-called &quot;failed&quot; research program. I believe that&#x27;s exactly what&#x27;s going to happen with some of these so-called &quot;failures.&quot;<p>Even today, what Elon Musk has already done, is considered impossible for his companies to have done. (The car, and the backwards landing rocket.)<p>Here&#x27;s to more moonshots from Google and Facebook! Salute!<p>-------------------<p>And here&#x27;s Nassim Taleb on &quot;inverse Turkeys&quot; (i.e., positive Black Swans), from AntiFragile:<p>&gt; Harvard Business School professor, Gary Pisano, writing about the potential of biotech, made the elementary inverse-turkey mistake, not realizing that in a business with limited losses and unlimited potential (the exact opposite of banking), what you don’t see can be both significant and hidden from the past. He writes: “Despite the commercial success of several companies and the stunning growth in revenues for the industry as a whole, most biotechnology firms earn no profit.” This may be correct, but the inference from it is wrong, possibly backward, on two counts, and it helps to repeat the logic owing to the gravity of the consequences. First, “most companies” in Extremistan make no profit—the rare event dominates, and a small number of companies generate all the shekels. And whatever point he may have, in the presence of the kind of asymmetry and optionality we see in Figure 7, it is inconclusive, so it is better to write about another subject, something less harmful that may interest Harvard students, like how to make a convincing PowerPoint presentation or the difference in managerial cultures between the Japanese and the French. Again, he may be right about the pitiful potential of biotech investments, but not on the basis of the data he showed.
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graycatalmost 9 years ago
For the project for real, actual moonshots, we knew in quite good terms right at the beginning that the project was doable. Same for the Manhattan project. Same for GPS. Same for the SR-71.<p>So, right, there is a methodology. Get very far from that methodology and tend to get failed projects.<p>Sure, on some par 3 hole, there are a lot of hole in one shots, and only a small fraction are made by expert golfers with the rest from luck. Still, if picking someone to make a hole in one, pick an expert!<p>Sure, with luck, might get another successful mobile, social, local, sharing app, but luck is not very reliable!
kmiroslavalmost 9 years ago
It&#x27;s R&amp;D expense. Nothing new here.<p>It only takes one of these moon shots to be successful to bring in extraordinary revenues, and Google has always been crystal clear that following such path was in their DNA.
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rainhackeralmost 9 years ago
I fear if such a view is prevalent, eventually focus might shift from &#x27;solving problems that matter on scale&#x27; to &#x27;how much money can I make out of this&#x27;. Hope research and innovation do not succumb to desire&#x2F;pressure to grow revenue. I don&#x27;t believe such projects cannot have any (indirect) monetary accountability. However, Investors should have a softer take on the outcome of these projects.
havetochargealmost 9 years ago
Can&#x27;t help but notice the bias in the title on HN. Sure, the company spent .8 billion on R&amp;D. The revenue went up by 3.5 billion this quarter too, yoy.
sriram_sunalmost 9 years ago
That is almost 20% investment on R&amp;D - twice as good as other <i>good</i> companies. That is why I would love to work for Google!
sudhirjalmost 9 years ago
A lot of times I feel like the instinctive reaction to the word losses is an image of Google stacking up a millions of dollars and burning it. That&#x27;s not what happened - it went to people who used it to build things that would not have been built otherwise, in the hope that some of them might shape the future. Not really a loss to humanity.
mythzalmost 9 years ago
That&#x27;s an interesting headline from the same company that posted a 21%&#x2F;28% YoY 21.5B Revenue &#x2F; 6B profit quarter.
corpusalmost 9 years ago
The people complaining about this better not be the same Thiel worshippers who constitute most of the Google hate here.<p>Thiel criticizes Google&#x2F;Alphabet for hoarding any cash <i>at all</i>. A true technology company re-invests all its excess profit.<p>This &quot;loss&quot; corresponds to less than 7% of Google&#x27;s gross profits in the same quarter.
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nickhalfasleepalmost 9 years ago
I had to look up [1] the etymology of &quot;moonshot&quot; and thought it was interesting.<p>moon shot, n.2 One might think, “1961, moon shot;” this word relates to the space program as this is the year that President Kennedy set out the great challenge to go to moon by the decade’s end, but it doesn’t, at least not directly. The space term dates to 1949. This moon shot is baseball jargon for a ball hit to a great height. But it’s still 1961, so the baseball usage could be a figurative use of the space term, but the type of hit was made famous by L. A. Dodger Wally Moon. Undoubtedly the coinage is something of a double entendre, combining Moon’s name with the astronautic term, but it shows that in etymology the obvious answer isn’t always the right one.<p>[1] <a href="http:&#x2F;&#x2F;www.wordorigins.org&#x2F;index.php&#x2F;site&#x2F;comments&#x2F;1961_words&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.wordorigins.org&#x2F;index.php&#x2F;site&#x2F;comments&#x2F;1961_word...</a>
ElijahLynnalmost 9 years ago
This is why nobody plays the long game, because of crap like this spread around. Articles like this force people to play the &#x27;quarterly&#x27; short game and we don&#x27;t get as much long term research as we need as a species.
philippebackalmost 9 years ago
Google operating costs are more than $5 billion a quarter. $859M is not that big.
havefunwiththatalmost 9 years ago
For that kind of money, you could build a new moon. I don&#x27;t see anything positive about this kind of loss. If anything, it sounds like questionable accounting to reduce the cost of other profits.
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soperjalmost 9 years ago
I wish they&#x27;d do something a long the lines of using all of their traffic data to design better lighting systems for cities. Gotta be able to do better than what is currently happening.
Animatsalmost 9 years ago
We need more detail in financial statements. &quot;Operating loss of $859 million in Other Bets&quot; is not enough disclosure for a public company.<p>It&#x27;s not research that spends that kind of money. It&#x27;s attempts to buy market share by selling at a loss that do. Or existing businesses with a high burn rate that aren&#x27;t profitable. That number includes Nest and Google Fiber, both of which are in production but perhaps not doing too well. Does it include Android? Google&#x27;s various attempts to build and sell phones? Motorola?
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Taylor_ODalmost 9 years ago
Good. Isnt that the idea? That&#x27;s what Moonshots are. Plus its hard to see returns on a moonshot in a year. This is a long term investment.
TheOneTrueKylealmost 9 years ago
Is there a way to incentivize smaller companies to take these risks (relative to the scale of the company and assuming you have the manpower)?
jlebrechalmost 9 years ago
would it be legal to announce R&amp;D as losses then buy back your own shares at a reduced cost?
joeyspnalmost 9 years ago
Quoting Edison here:<p>&quot;I have not failed. I&#x27;ve just found 10,000 ways that won&#x27;t work.&quot;
mite-mitreskialmost 9 years ago
Better to have `Moonshots losses` than some CEO&#x2F;Board rip off stock buyback scheme.
shaunrussellalmost 9 years ago
Alphabet INVESTS $859M on &#x27;Moonshots&#x27; in 2Q 2016
engizeeralmost 9 years ago
That&#x27;s pretty much Amazon&#x27;s profits in 2Q 2016.
perseusprime11almost 9 years ago
How much did Microsoft spend on their R&amp;D?
dschiptsovalmost 9 years ago
Has Peter Norvig retired?
jakozauralmost 9 years ago
s&#x2F;loses&#x2F;invests
knownalmost 9 years ago
AFAIK thinking out-of-the-box is prohibited in Corporations :)
pmyjavecalmost 9 years ago
People are still starving in the USA on a daily basis, it&#x27;s a mad world
honkhonkpantsalmost 9 years ago
Why should any organization have net profits at all? &quot;Loses&quot; here is being used to mean &quot;spent&quot;. You can&#x27;t just keep stacking up cash forever. That would be pointless and stupid.
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