Wait, Google's 'moon shots' cost how much???

Alphabet, Google's new parent company known for ambitious projects, reveals just how much innovation costs. All that spending has helped it become the most valuable in the world, topping Apple.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
3 min read
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Ruth Porat, Alphabet's CFO, gave us new information about the company's experimental projects.

Ringo Chiu/ZUMA Press/Corbis

Alphabet, the new parent company of Google, is the Willy Wonka factory of tech: driverless cars, Wi-Fi beaming balloons, glucose-reading contact lenses and even plans for smart cities.

If founders Larry Page and Sergey Brin can pull off all those so-called "moon shots," they'll certainly deliver a future full of intrigue.

But innovation isn't easy -- or cheap.

On Monday, CFO Ruth Porat gave us our first real glimpse into the operations behind those projects, including how much they're costing the search engine giant.

Sales from the moon shots, which Alphabet calls "Other Bets," are up 37 percent in the last year to $448 million. But losses from those experimental projects (minus stock based compensation) nearly doubled to $3.07 billion in the 12 months ended December 31.

The company also added more than 8,200 employees to its workforce, bring the total to 61,814. That's up 15 percent from last year.

"It's an exciting new chapter," Porat said during a conference call. "It's about getting more ambitious things done."

In August, Google co-founder Page dropped a bombshell when he announced that he and Brin were reorganizing the company they founded 18 years ago. Alphabet is a holding company, with nine semi-independent companies tucked into it. They include the ad-driven Google search engine business, as well as more nascent efforts such as smart devices company Nest, life sciences firm Verily and X, home of more speculative experiments like self-driving cars.

Move over, Apple. Alphabet's worth more

Google's Internet services -- the bread and butter of its portfolio that includes its search engine, YouTube and Android mobile software -- is still on top. Google CEO Sundar Pichai said during the call that Gmail now has 1 billion active monthly users. It joins six other products with more than a billion users apiece: search, the mobile operating system Android, the Web browser Chrome, maps, the marketplace Play and YouTube.

That's crucial because Google's earnings are the sole reason Alphabet can afford to experiment with so many other projects.

In total, fourth-quarter sales rose 18 percent to $21.3 billion, Alphabet said in a statement. Profit, minus some costs, was $8.67 a share. Analysts were expecting $20.77 billion in sales and earnings of $8.09 per share.

Investors seemed happy with the results. As the stock rose more than 5 percent in after-hours trading, the company's market cap topped $554 billion, turning Alphabet into the most highly valued company in the world. Up until today, the title has belonged to Apple, which is valued at about $541 billion.

Other companies contained within Alphabet include venture firms GV and Google Capital, along with Access, which develops the company's high-speed Internet service, Fiber. There's also Calico, which focuses on human aging, and Sidewalk Labs, which takes on urban planning.

Most of the Alphabet divisions are still in their very early stages. The exception is Nest, which Google bought in 2014 for more than $3 billion. Nest, which makes Internet-connected thermostats and smoke detectors, has become the model for how an Alphabet company should run, according to a person familiar with the matter.

Other than Google, the Alphabet companies generating the most revenue are Nest, Access and Verily, Porat said.

Still, Alphabet doesn't want you to think that just the "Other Bets" are having all the fun. Porat was quick to tout the "moon shots" coming out of Google proper, which includes artificial intelligence efforts from a division called DeepMind and virtual reality.

One of the main reasons for the Alphabet restructuring -- aside from giving investors more insight into what's making money and what's not -- was to attract more entrepreneurs, Page said in November. "Trying to make a company for entrepreneurs is something we're striving for."