Alphabet Inc (NASDAQ:GOOGL) is reportedly selling its Terra Bella Imaging satellite business to Planet Labs, one of Terra Bella’s fiercest competitors. For the past year, Alphabet has outperformed the Zacks Internet-Services industry. GOOGL has returned 12.68% compared with the industry’s return of 11.89%.
Bloomberg reported on Monday that the sale is likely an equity transaction with Alphabet keeping a stake in Planet Labs.
Formerly known as Skybox, the earth imaging company was founded in 2009 and the search giant bought it for $500 million in 2014, the same year when Skybox was named no. 1 on Inc. magazine’s 25 Most Audacious Companies.
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The move underscores Alphabet’s efforts to trim relatively less-revenue generating businesses and attain financial discipline.
In Aug 2015, Alphabet reportedly curbed expansion of its high-speed fiber optic Internet network, cutting 9% of its staff. In November, the company scaled back Project Wing, its experimental drone delivery program.
What’s on Planet’s Platter?
Privately held Planet operates with dozens of small satellites that take pictures of the Earth surface frequently. However, the resolution of the images is low. Terra Bella has larger satellites with high image resolution but its fleet contains only seven satellites, which limits the frequency of capturing images.
Thus, we believe that through this acquisition, Planet Labs will add high resolution satellites to its fleet. Both companies share the satellite imaging space with giants like Airbus’ (OTCMKTS:EADSY) Airbus Defence & Space and DigitalGlobe Inc (NYSE:DGI).
Alphabet’s sales, marketing and R&D expenses have gone up considerably in the last five years. There are also some other margin pressures. The most significant at the moment is related to currency, which continued to impact Alphabet’s results despite the fact that it has a hedging program in place.
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Other expense pressures include fast-paced international growth, a growing volume of lower-priced YouTube clicks and strength of the mobile platform. So we believe that Alphabet has foreseen an escalation of costs in the years to come and is gearing up well in advance with decisions like these.