This Alphabet Inc (GOOGL) Moonshot Could Become Its Own Company

Advertisement

Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) hasn’t shied away from betting big on new technologies shaping our world. The company has spent large amounts of money acquiring companies and investing in new upstarts. Google’s Project Wing, for example, recently announced plans that could soon boost the price of GOOGL stock.

This Alphabet Inc (GOOGL) Moonshot Could Become Its Own Company

Alphabet announced plans to create an online exchange named “Wing Marketplace” that would allow customers to get deliveries from selected retailers and restaurants.

Drone deliveries aren’t new, but they have not been officially approved in all 50 states. Alphabet is but one of several companies that has tested drone deliveries and showcased its successful launches, but it’s also highlighted possible concerns.

An announcement like this isn’t usually that exciting. However, Alphabet named two companies that are actively looking at using this service, which would give the GOOGL Wing project a huge tailwind. Both Whole Foods Market, Inc. (NASDAQ:WFM) and Domino’s Pizza, Inc. (NYSE:DPZ) are considering using this service in some capacity.

While they have already declined to sign on due to concerns over the user experience, Starbucks Corporation (NASDAQ:SBUX) also considered the Wing Marketplace as an optional coffee delivery system.

Delivering groceries by drone might need some work (how much weight can a drone carry and how much power will that require?). Delivering items like pizza or fast food, however, are more realistic achievements. For Dominos this represents another technological advancement.

This is a company that caught on to online ordering, mobile ordering and other technology quicker than other pizza companies. Domino’s even played a hand in the world’s first commercial pizza delivery by drone when its New Zealand franchise completed the task earlier this year with drone company Flirtey.

Along with Flirtey, a company backed by Qualcomm, Inc. (NASDAQ:QCOM), competition to Google in its drone ambitions comes from Amazon.com, Inc. (NASDAQ:AMZN). Amazon Prime Air, which successfully delivered a bag of popcorn and Amazon Fire TV Stick to a customer in the United Kingdom earlier this week, leads the way in drone delivery.

As mentioned above, several companies have successfully delivered items by drone in test runs. Project Wing was one of these successful companies earlier this year when it delivered Chipotle Mexican Grill, Inc. (NYSE:CMG) burritos to students at Virginia Tech University. Alphabet has also been a heavy investor in small private companies in the drone sector. From 2012 to 2016, Alphabet trails only Qualcomm for amount invested in the sector for private funding.

For Alphabet, this represents an opportunity to create revenue from one of its so-called moonshots. Under the Wing Marketplace service from Google’s Project Wing, customers would pay a $6 fee for delivery.

The big question here is whether the $6 would even bring a profit to Google or the partner company. Google may be willing to break even on the service for now in the hopes of beating its competition and luring customers away from other services. Who wouldn’t pay extra money for delivery if it was coming by drone?

Under the Alphabet umbrella are two main divisions, one called Google and one called “Other Bets.” Earlier this year I wrote about the Other Bets area, with a focus on how Google was expanding into healthcare heavily. For the Project Wing division, the possibility of revenue and a future timeline comes at the perfect time.

Google hired Chief Financial Officer Ruth Porat, whose nickname “Ruthless Ruth” comes from controlling spending and wanting to see actual paths to profit for the Other Bets areas. This could mean good news for GOOGL stock as maximum profits will be realized, but could also keep Alphabet Inc from expanding out into new growth areas and further diversifying away from advertising revenue.

In the recent third quarter, Google reported revenue growth of 20% to $22.5 billion. Of that total, $22.3 billion came from the Google segment and only $197 million came from Other Bets. The financial picture gets even worse for the Other Bets segment when looking at operating income. Other Bets lost $865 million in the third quarter, compared to a $6.7 billion profit for the Google segment. In the first nine months of the fiscal year, Google Core has produced operating income of $26.8 billion, while Other Bets has lost $3.8 billion.

GOOGL stock remains one way to play the rise of drones. While it is a small bet for a company bringing in massive amounts of money each quarter, it is a great start for the unprofitable Other Bets segment for GOOGL. Drone delivery is a segment that could turn into its own company and eventually spin out from Alphabet. For more exposure to drones, investors should also consider checking out the PureFunds Drone Economy Strategy ETF (NYSEARCA:IFLY).

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/googl-stock-google-project-wing-alphabet-inc/.

©2024 InvestorPlace Media, LLC