If you want to know why Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) was willing to pony up $1 billion to invest in unprofitable ride-sharing venture Lyft, the dots aren’t too tough to connect. The decision was one part message, one part revenge and one part “just good business.” Though news of the deal didn’t affect the GOOGL stock price (and won’t likely do so in the foreseeable future) current and would-be owners of Google stock may want to read between the lines.
In many regards, this partnership with Lyft may be signaling the near-readiness of Alphabet’s self-driving car technology.
And something else curiously happened in the meantime to underscore the premise.
Coming to a Head
On the off-chance you’re reading this but still haven’t heard, a few days ago ride-hailing company Lyft garnered $1 billion in funding from Alphabet, in exchange for a seat on Lyft’s Board of Directors; David Lawee will be assuming that role.
It’s a curious development to some owners of GOOGL stock, only because Alphabet has long been an investor of Lyft rival Uber, even co-developing self-driving car technologies that could ultimately power Uber’s fleet.
On the surface it seems as if Alphabet is merely hedging its bet. By teaming up with two companies rather than just one that could potentially tap its autonomous car project called Waymo, which has been working on self-driving tech for years now. Alphabet needs to catch up with Tesla Inc (NASDAQ:TSLA), and is also seeking to keep Apple Inc. (NASDAQ:AAPL) at bay. The former already has autonomously-driven cars on the road, while the latter is still working on it (though Apple’s self-driving project has shrunk in scope).
There’s more to it than that, however. The Lyft partnership is also one that’s apt to be much less of a headache than the one scandal-ridden Uber has been for its investors for months now.
Chief among those scandals, of course, is now-former CEO Travis Kalanick being forced to step down after credible allegations of sexism and sexual harassment. Even beyond that though, Uber’s boardroom has been more than a little chaotic, so much so that it’s serving as a distraction the unprofitable organization just doesn’t need right now.
Passing along $1 billion to a much smaller but a much better managed Lyft (Alphabet only provided $250 million to Uber several years ago) may be a message to Uber and other potential partners. Alphabet easily could be signaling that at the very least the search giant’s capital-providing arm CapitalG expects its partners to be grown-ups.
Then there’s the not-so-small legal wrangling between Uber and Alphabet.
The short version of a long story: Uber allegedly recruited some of Alphabet’s top engineers with the primary intent of stealing the company’s trade secrets. The trial is expected to start in December. The strain on the relationship has been palpable.
It’s tough to imagine Alphabet not winning that legal battle, even if only because it can outspend Uber.
Think Bigger Picture
While the reasons for Alphabet’s interest in, and backing of, Lyft are mostly clear, the funding agreement in and of itself won’t likely do much for the GOOGL stock price. Take a step back, however, and look at the bigger picture. That is, why is Alphabet partnering up now, as opposed to a year ago, or a year from now.
One distinct possibility? Waymo is nearing readiness.
If you’re expecting some sort of official launch event (or even a suggested timeline) from Alphabet about when Waymo will become a commercialized product, don’t hold your breath. The company has been intentionally veiled, by design as well as by necessity. That’s not apt to change. On the other hand, forking over $1 billion to the industry’s (much) smaller second-place player could be a sign that it sees Lyft as more prepared than Uber to do something fruitful with its autonomous car technology. Of course, Lyft’s readiness is also a function of Waymo’s readiness.
It’s certainly not an unreasonable conclusion.
Something else happened just a few weeks ago, however, that was curious. That is, though the relationship had been in place since 2009, it wasn’t last month Intel Corporation (NASDAQ:INTC) divulged it had been working with Alphabet on self-driving cars for the past eight years. It’s impressive news to say the least, but it also prompted good questions from forward-thinking investors. Questions like, “Why were Intel and Alphabet unwilling to say anything until now?”
One possible answer: There’s no need to keep a secret now, meaning once again that Waymo’s underlying technology is more or less complete and can’t easily be copied or replaced by a competitors.
That’s nothing either company has confirmed, but again it’s not an unreasonable conclusion.
Looking Ahead for GOOGL Stock Price
Don’t read too much into the idea. Meaningful commercialization of Waymo, whether it be through Lyft or through Uber or through both is still miles away. This isn’t going to catapult the GOOGL stock price in the immediate future, if it ever catapults it.
By corporate development standards though, some of the recent events, news and positioning suggest we’re closer to the end of this R&D than now. The company is jockeying for the best outcome, more so now than it has in the past on this front.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
