Alphabet’s core business is moving

Alphabet’s core business is moving

Brian Feroldi: This reminded me very much of Shopify’s quarter. Their cloud revenue which is much smaller was up 46%, their “other bets” was up 47% but that is a little bit misleading because it is less than one drop in the bucket. When we look at gross profit, all the gross profits still comes from Google services which is advertising basically. But their gross profit was up 69% while revenue was up 34%. That means they’ve got some really great leverage there. They announced a $50 billion share repurchase and where they stand right now is we’re talking about a company with $135 billion in cash just 14 billion in debt and over $51 billion in free cash flow over the past year.

Stoffel: Yes, it did. The difference that I notice is that all those other bets, they’re not in pursuit of the same mission that Google’s core business of making information available to everybody. I wonder if we’re learning something about how to have the barbell approach here. I don’t know how much longer we should give the other bets division, I also don’t care because everything else is just doing so well.

But what I will say Brian is this, because I was thinking about this, the companies that are able to have other bets that really succeed are the ones where all those other bets are still in pursuit to the overarching company’s mission. Think about Amazon, they want to be Earth’s most customer-centric company. All their other bets like AWS was in the “other bet” for them at one point in time. Selling anything more than books was the “other bet” at one point in time. Developing a streaming video service was an “other bet” for Amazon at some point in time. Amazon had all these other bets become widely ridiculously successful while we’re still waiting on Waymo to be monetized in some way shape or form and I feel like I haven’t even heard about that in months. Feroldi: Fair enough. Hard to complain about a rounding error on the income statement when everything else grew 34%. [laughs] Yeah, fair enough.

Stoffel: You’d think so? I love their approach because their approach is a barbell. We’re going to throw 80% of what we’ve got behind advertising, we’ll develop the rest on the side. Feroldi: When I was like everything looks good, literally everything, but I actually do have a nitpick here versus Shopify where it was hard to pick anything. The other bets division is a rounding error and the company has been investing in these other bets for 10-plus years, should we expect something to pay off at this point?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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