Google's earnings soared on its core search advertising business in fiscal 2015, but "moonshot" ventures continue to lose big money.
One year ago, Wall Street worries about a series of disappointing financial quarters by Google had some wondering if the company had lost its mojo.
Some accused it of clinging on to maturing revenue pillars
, others were skeptical about Google's ability to keep up with the accelerating shift to mobile, and yet others worried if it was spreading itself too thin with its various moonshot projects.
Results for the fourth quarter of 2015 announced
by Google parent Alphabet Inc. this week should go some way in dispelling those concerns, at least as far as Google's core search business goes.
Not only did the company beat Wall Street's expectation for the quarter with earnings of $4.9 billion on revenues of $21.3 billion, it also turned in solid year over year growth with profits of $23.4 billion on annual revenue of $74.5 billion.
by comparison, Google reported net income of $4.6 billion on revenues of $18 billion in the fourth quarter of 2014 and a net profit of $19 billion on revenues of $65.6 billion for fiscal year 2014.
Google's various other moonshot ventures, collectively dubbed 'Other Bets' did not fare quite as well in 2015, recording an operating loss of $3.5 billion on revenues of $448 million, compared to the $1.9 billion loss and revenues of $327 million it reported last year.
Even so, the company's better than expected performance overall has buoyed investors who sent the company's stock sharply upward following the results announcement.
This is the first time that Google has provided details on how all its ventures in myriad new areas including self-driving cars, high-speed Internet, health care and smart home devices are performing. What it showed is that the company is still heavily dependent on its core search driven ad business for both revenue and income.
"Google growth still seems very strong," said independent industry analyst Jeff Kagan. "Some investments from Google are paying off big time. Some are not. Alphabet separates them," he said.
By separating Google's core business from its other ventures, Alphabet has made it easier for investors to choose where they want to put their investment dollars, he said. Still, it is going to be hard picking winners from its multiple ventures, he said.
"Google's business model is to throw stuff against the wall and build on whatever sticks. Problem is you don't know what's going to stick and what they're going to start building."
Charles King, principal analyst at Pund-IT said Google's performance was generally impressive with better results in areas where it was expected, such as search and advertising driven revenues. While the results show that Google's moonshot ventures have yet to turn a profit, that is only to be expected, he said.
"Moonshots are, by their nature, investments whose long-term payback is difficult or impossible to fully estimate," he said. Even Google's search engine, when originally launched, was something of a gamble, he said. While it enhanced the speed and accuracy of online search, few would have been able to predict its evolution as a powerful advertising instrument. The same is true for many Google projects that are now successful, he said, pointing to Maps, Gmail and Android as examples.
"Who's to say whether self-driving cars, smart jeans or WiFi balloons might be equally influential or profitable," King said.
Gartner analyst Tom Austin said that Google's creation of Alphabet would foster a sense of greater accountability for the company's other bets. "What they have done is enough to help drive some changes in how Other Bets—and Google—are managed," he said.
Google founders Larry Page and Sergey Brin are betting that the moonshots will eventually pay off and the greater visibility offered by Alphabet will allow them to act more quickly, he said. "I can't stop thinking that they're going to act just a bit more quickly in areas like cleaning up the robotics projects now that there's a bit more financial visibility into all the other work," Austin said.
Google, like other companies, needs to continually reinvent itself and evolve entirely new businesses so as not to be eclipsed by others, Austin observed. "There's no guarantee they can do that, but there's no reason to bet that they won’t either," Austin said.