Google is showing discipline with 'moonshot' spending, which is exactly what investors wanted
Google isn't blowing that much money on projects like self-driving cars after all — less than 10% of its capital expenditures in 2015 were for forward-looking products outside its core.
This came out in fourth-quarter earnings for Google's parent company, Alphabet.
This was the first time Alphabet broke numbers out for the core "Google," which includes the businesses most of us think of — search, advertising, YouTube, Android, and so on — and "Other Bets," which includes long-term projects like fiber-based internet access, self-driving cars, and internet-bearing balloons.
Capital expenditures for Google's core products hit $8.8 billion last year, spent mostly on data centers and other facilities. Other Bets only accounted for $869 million in capital spending. Most of the Other Bets capex spending went to Google Fiber, which Alphabet now offers in nine cities, Google said on its earnings call.
Overall, the Other Bets group posted an operating loss of $3.57 billion on $448 million in revenue in 2015.
Alphabet CFO Ruth Porat said that the company had to make some "tough calls" and that there was a "disciplined envelope" across Other Bets.
Lines like this are exactly what Wall Street, long wary of Google's moonshots, wanted to hear. Although Porat has promised investors since she started at Google that the company spent way more on its core than smart contacts and thermostats, this was the first time she could prove it.
Here's a chart from Jackdaw Research:
Porat also made sure to stress that the company is going to keep spending a bunch of money on that core, too, by highlighting a bunch of areas where its trying to innovate.
In many ways, some of Alphabet's biggest moonshots are in Google itself. From driving the next wave of computing through machine learning, capitalizing on the shift to the cloud by enterprises, building platforms like virtual reality, and pursuing the opportunities we see with the "next billion" users in emerging markets, you should expect Google to continue to invest in efforts to improve life for billions of people.
This line from Porat's prepared remarks was significant for a couple of reasons.
First of all, it shows us how Google thinks about its future growth. Google CEO Sundar Pichai proceeded to boast about its enterprise business and how machine learning and artificial intelligence have helped make popular products like Photos, Inbox, and search better and more powerful. The company has also been on a VR hiring spree.
But it also feels like a reminder to prospective employees that Alphabet's subsidiary companies, like X and Calico, aren't the only ones innovating — Look! Google's still doing cool stuff, too! We're not all about ads!
But the report also proved that ads are still a hulking business: That's how Google pulled in $19 billion of its $21.3 billion in revenue this quarter.
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