Alphabet Losing $1.5 Billion Annually on Non-Google ‘Bets,’ Says Analyst
Pacific Crest believes Alphabet generated $560 million in revenue but lost $1.5 billion in operating income in 2015 on all its non-search businesses.
Alphabet is expected to disclose more about the finances of its non-Google businesses when it releases fourth quarter results in the next month. For those who simply can’t wait, however, Pacific Crest analyst Evan Wilson has pieced together estimates of what he calls Alphabet’s “other bets,“ including self-driving cars, investment unit Google Capital and home automation division Nest.
Boiled down, Wilson believes Alphabet generated $560 million in revenue but lost $1.5 billion in operating income in 2015 on all its non-search businesses. When you add other expenses like operations, administrative and facilities expenses, Wilson thinks the losses “could stretch to the low end of the $2 billion to $5 billion range that the Street currently assumes for other bets.“
Here’s a sampling of the “bets,” according to Wilson:
Company / Net Revenue / Loss
— X Labs / $0 / $282 million
— Self-Driving Cars / $0 / $96 million
— Google Capital / $0 / $28 million
— Nest / $450 million / $221 million
— Access & Energy / $105 million / $304 million
— Sidewalk Labs / $0 / $2 million
All told, Wilson said the total value of Alphabet’s “other bets” is around $22 billion. As previously reported, Alphabet had Q3 revenues of $18 billion and profits of $4 billion, up from $2.7 billion at that time in 2014.
Even with the losses brought on by Alphabet’s “other bets,” Pacific Crest cites their potential as long term investments in raising its stock target from $820 to $850. (GOOGL is currently trading at $768, up 1 percent for the day.)
“Many have shifted to the idea that the more Alphabet is losing on other bets, the better it is for GOOGL,” Wilson writes in his paper (via StreetInsider). “This means the Google core is even more profitable and valuable than previously disclosed. After our analysis, we’re not sure that the new disclosure makes core Google look much more profitable than expected.”
But he adds, “We do think the disclosure is positive because it is part of Alphabet’s journey to be more shareholder friendly, which we think will continue to be a catalyst for GOOGL.”