Alphabet’s long-term bets face a short-term problem. The trillion-dollar parent company of search engine Google is having a worse time than its rivals. Second-quarter revenue fell 2% compared to the previous year, while Facebook sales increased. And the auxiliary projects, which had their point of intrigue, today seem nothing more than ballasts.
The huge contraction in marketing spending during the confinement by Covid-19 hit the largest of the companies in the digital world. Google’s advertising revenue, which includes YouTube, fell 8% to $ 30 billion.
Facebook faced similar obstacles, but still managed to increase its revenue 11% year-on-year in the second quarter, almost all from advertising. In July, an advertising boycott began whose main objective is Mark Zuckerberg’s social network, so the effects will not be noticed until the current quarter.
The shares of both companies have performed worse relative to the Nasdaq 100 index this year, despite the robustness of many of the big tech companies. Alphabet’s actions have fared better than Facebook’s in the past four years, with scandals that have spilled over to the latter such as interference in the US election or privacy-related breaches. Nonetheless, Facebook has largely maintained its revenue growth, while in the past year Google has begun to experience increasing advertising competition from Amazon.com.
Alphabet’s core business challenges make attention more focused on its diverse mix of projects. What he calls “other bets” includes Waymo, a self-driving vehicle; Access, the Internet fiber business; and Loon, the stratospheric balloon business to provide Internet access. In the second quarter, they all incurred operating losses of $ 1.1 billion with revenue of $ 148 million. This fall means subtracting 15% from the 7.6 billion dollars that Google entered.
Other bets come to reflect the interests of co-founders Larry Page and Sergey Brin. They continue to control Alphabet through enhanced voting rights, although the company is run by Sundar Pichai.
There are ways to incorporate a little discipline into these “right eyes” of their owners. For example, in March Waymo received an external investment of more than $ 2 billion, according to the Financial Times. It is a way to distribute the high cost of developing the technology necessary for a vehicle to drive itself.
In addition, Google Fiber has just announced its first project with a city after languishing for four years. Alphabet could afford these inventions when it regularly recorded an income growth of around 25%. Now they are looking for luxuries that could test investor patience.