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August 30, 2023

Breakingviews: Alphabet moonshots are ready for launch

by Breakingviews.

Alphabet is poised to welcome the autumn harvest. Ruth Porat, the web search giant’s chief financial officer and a former technology investment banker at Morgan Stanley, will move into a new role next month that includes overseeing “other bets,” an eclectic collection of experimental projects. It’s a good time to cull and rethink the cash-burning portfolio.

A shift is already underway at Verily Life Sciences, the health-data cruncher that generated some $560 million in revenue last year, the Wall Street Journal reported earlier this month. The sum accounted for more than half the $1 billion contributed by the non-search division. In 2022, Alphabet’s top line was more than $280 billion, yielding $60 billion of net profit. The “other bets” lost $6 billion.

Despite nearly doubling its top-line growth rate this year, Verily’s operating costs are also rising, according to tech news outfit The Information. Verily boss Stephen Gillett told employees this month that it will cut its ties to several of Alphabet’s services next year. The decision suggests that a spinoff could be on the horizon; Verily also has already raised outside capital from investors such as Singaporean wealth fund Temasek.

For Alphabet, cutting Verily loose would make sense. The business it incubated originally set out to develop a cancer-detection pill, but today Verily makes most of its money from selling an insurance product to employers. Such a financial services business strays from Alphabet’s wheelhouse, and with artificial intelligence demanding fresh attention, it’s wise to be prudent about capital allocation. Chris Hohn’s activist TCI Fund Investments publicly noted as much to the $1.6 trillion company last year.

Some other “other bets” also look like promising candidates for separation soon, too. Waymo, the autonomous vehicle technology business, secured a vote of approval this month from San Francisco to operate driverless rideshares in the city. Moreover, trouble in the sector has washed away some competitors like Ford Motor’s similar business. After some years of stagnation, internet provider Google Fiber, another substantial source of revenue in Alphabet’s laboratory plans to expand again.

Other speculative efforts, however, could end up supplying important sources of long-term growth. For example, Porat moved DeepMind, an AI business once housed in “other bets,” under Google’s umbrella earlier this year. The decision suggests there’s merit in Alphabet backing unproven, early-stage ideas and trying to help them flourish, especially as trustbusters crack down on tech goliaths growing by acquisition. Some moonshots, however, demand to be launched.

Context News

Verily Life Sciences plans to stop using parent company Alphabet’s services, including real estate and software, by the end of 2024, Chief Executive Stephen Gillett told employees, technology publication The Information reported on Aug. 18. The healthcare-focused unit reported an operating loss that was $17 million wider than it had projected for the first half of 2023, according to a Wall Street Journal article published on Aug. 16, citing an internal presentation. In 2022, Verily lost $568 million on $559 million of revenue, the newspaper reported.



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