Google Can’t Afford to Take Its Foot Off the Spending Brakes
Raymond James analyst Srini Pajjuri. Analysts expect Nvidia’s data-center revenue to more than double year over year to nearly $8 billion for the quarter ended in July, according to FactSet. So the pressure on Google to keep other costs down won’t be letting up anytime soon.
That is shining an unflattering light on Other Bets—a segment under the Alphabet structure that comprises various early-stage businesses not central to Google’s core operations. The Wall Street Journal reported last week that the company is planning cost cuts at its Verily Life Sciences unit after the health technology provider lost $568 million last year. That is unlikely to be the end of it.
The Other Bets segment lost a total of nearly $6.1 billion last year on $1.1 billion in revenue. But while Google isn’t hurting for resources—Alphabet’s net cash balance of nearly $136 billion is the highest in tech by far—the red ink still leaves a mark. Operating losses from Other Bets have clipped an average of 2.6% from Alphabet’s annual operating income over the past 10 years.
Chief Financial Officer Ruth Porat, who helped lead the creation of the Alphabet structure, is notably moving to a new role at the company that will primarily oversee the spending in Other Bets. Google also could face rising costs for its core business. The Justice Department has sued the company over the payments it makes to companies such as Apple to be the exclusive search provider on platforms such as the iOS operating system.
A trial in that case starts next month. Analyst Ken Gawrelski of Wells Fargo says Google is likely to win that case. But the victory could come with a cost, as he thinks the company has been unable to update its agreement with Apple since the lawsuit was
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