Earlier this week, the venture capital arm of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) — Google Capital — made a relatively sizeable investment in personal services company Care.com Inc (NYSE:CRCM). All told, the $46.4 million purchase makes Google Capital the largest shareholder of CRCM, earning it a seat on the Care.com board of directors.
It’s the first time Google Capital has made an investment in a publicly-traded entity.
While the news sent CRCM shares soaring 37%, it didn’t do a whole lot for the value of GOOGL stock. Then again, why should it?
Alphabet is a $487 billion company that generates nearly $80 billion worth of revenue per year. Care.com, on the other hand, is only a $364 million outfit that’s generated $146 million in sales over the course of the past four quarters. There’s only so much impact a stake in Care.com can have for Alphabet.
Thing is, to forward-thinking owners of GOOGL stock, the stake in Care.com isn’t about owning a piece of Care.com. This is another Google/Alphabet foray into the offline service world. Investors may want to take the bigger hint.
Google Capital Invests in Care.com
For the unfamiliar, Care.com is on online marketplace that connects caregivers with customers. It offers a wide variety of personal services … services as simple as pet-sitting to as specialized as care for Alzheimer’s patients. Under the terms of the deal, Alphabet is now an owner of convertible preferred shares, which pay a dividend yield of 5.5% for the first seven years they exist, if Alphabet holds the stake.
Google Capital’s interest shouldn’t have come as a complete surprise to shareholders, as Google has actually been a long-term customer of Care.com, offering its services as an employee perk. As Google Capital’s lead Laela Sturdy explained, “I’ve been able to see first-hand how Care.com’s innovative mobile platform and enterprise solution — Care@Work — helps families search for caregivers and get much needed back-up care services.”
But still, a technology company getting into the personal services game? Actually, there’s some logic behind the deal.
What the CRCM Deal Is Really About
For the likeliest motivation behind a controlling stake in Care.com, one only has to look at the rise of outfits like Angie’s List Inc (NASDAQ:ANGI), and indirectly, Yelp Inc (NYSE:YELP).
The former is a straightforward middleman, hooking up consumers with a service need with service providers. Yelp does the same — even if unintentionally — by serving as a venue at which consumers can find a business at the same time it reads reviews of those businesses.
It is a big business in itself. Angie’s List generated $344 million in revenue last year, and didn’t have to touch one paint brush or lift one hammer to do it. Yelp drove $549 million worth of sales just by connecting service buyers and service sellers.
If any one company has inspired Alphabet’s new-found interest in personal services though, it would arguably be Amazon.com, Inc. (NASDAQ:AMZN). Most consumers probably don’t know it, but Amazon has actually been in the service-industry game for a while, and it’s getting some traction.
Amazon Home Services became a reality in 2014 and moved beyond a proverbial beta test in early 2015, helping individuals find construction contractors, mechanics, housekeepers, business services, and more.
Whether or not there’s any money in it for Amazon isn’t clear; there probably isn’t. Then again, profits were never the point. Amazon CEO Jeff Bezos recognized long ago that the company would be best served by becoming a lifestyle company than a mere seller of goods. If a consumer comes to Amazon.com seeking a housepainter, it’s just one more way Amazon keeps that consumer connected to Amazon. If they have enough of those connections, eventually it’ll drive revenue Amazon’s way.
That’s not to say Alphabet has ignored the idea of “all encompassing.” Alphabet’s self-driving car ambitions, as well its work with delivery drones, are clear departures from the company’s myriad internet-related offerings.
Alphabet hasn’t yet become the lifestyle company Amazon has, however, but now it looks like Alphabet understands the upside of doing so.
Bottom Line for GOOGL Stock
As was noted, in the grand scheme of things the purchase of a major stake in Care.com likely won’t bump up the value of GOOGL stock … even in the distant future.
Not even an outright acquisition of Care.com would have a significant impact on Alphabet’s top and bottom line. It’s important, however, as it points to a new, non-web-tech and middleman-oriented direction for the company.
Underscoring this very idea are some of the other recent investments Google Capital has made. For instance, in September of last year it bought a stake in Oscar Health, which is essentially a health-insurance broker for individuals. In March of this year, Google Capital invested in an Indian auto classifieds website, helping car buyers and sellers hook up.
The parallels are clear.
While Google Capital may be setting something of a new tone for Alphabet’s future, owners of GOOGL stock should also accept the fact that it may not matter for a long, long while.
The growth-capital arm of the company isn’t taking on majority stakes the way Google Venture or Alphabet’s “other bets” or even the Google division would; the interest in, and financial commitment to, its portfolio companies has been has been modest. Indeed, the entire organization has been content to build and maintain an operational wall between Google Capital and everything else.
Still, as the premise is proven it could become a bigger part of the capital-deployment mindset, and it would take very little for Google itself to leverage its involvement in all these service-oriented ventures into something completely under the Google umbrella. Small steps.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
