We all know that tech giant Alphabet Inc. (NASDAQ:GOOGL, NASDAQ:GOOG), Google’s parent company, is primarily an advertising company. The firm’s bread and butter comes from selling ad space, making its search engine pretty much the most valuable part of the business and the main catalyst for GOOGL stock. That’s understandably worrying for investors, not only because it essentially puts the majority of the firm’s eggs in one basket, but also because privacy concerns and new legislation are threatening to turn the online advertising space upside down over the next decade.
However, the projects that Alphabet is working on behind the scenes are a big part of the bullish case for GOOGL stock. Right now, the firm’s ad business is the cash cow, but investors should not discount the company’s other bets on the future. Outside of the advertising space, Alphabet is working on quite a few projects that look likely to improve the company’s results in a decade or so, once it has developed the technology it’s working on. Of course, significant improvements in Alphabet’s results should meaningfully boost GOOGL stock.
Moonshots
Alphabet calls its future bets “moonshots” because they often begin as small ideas that appear to be long-shots. It’s important to note that Alphabet’s moonshots aren’t profitable. As a result, they have drawn a lot of criticism from those who say the company is spending its cash on worthless endeavors. Of course, in some cases the moonshots turn out to be worthless, money-losing projects. However in other cases Alphabet has been able to develop very promising technology, leaving the company and GOOGL stock well-positioned for future success.
Driverless Cars
Perhaps Alphabet’s most promising moonshot is the company’s autonomous driving business, Waymo. Google has quietly become a leader in self-driving car technology, with more than 8 million miles of real-world test driving logged and 5 billion miles driven on a simulator. Plus, the company’s autonomous vehicles haven’t been involved in any major crashes like those of some of its competitors. Furthermore, Waymo is working with Fiat Chrysler Automobiles (NYSE:FCAU) as well as Jaguar Land Rover on driverless cars.
In addition to deals with automakers, Waymo is also teaming up with retail giant Walmart (NYSE:WMT) to deliver groceries for the giant retailer using Waymo’s autonomous cars. The agreement serves two major purposes for Alphabet: First of all, it will give Waymo much more publicity. Right now, when you think of autonomous driving, Tesla (NASDAQ:TSLA) is likely the first name that comes to mind. However, once you’ve ordered your groceries from Walmart a few times and picked them up in a Waymo vehicle, your perception is likely to change.
The deal also expands the use of autonomous cars by helping supermarkets make their delivery service more efficient.
Further Into the Future
Driverless cars are likely to be the next major technological shift that will impact everyday life in a significant way; some are even comparing the vehicles’ launch to the advent of the internet back in the 90’s. That’s what makes Alphabet’s involvement in developing that technology so interesting from an investment standpoint. However, Waymo isn’t Alphabet’s only moonshot that deserves attention.
Alphabet is also working on some healthcare projects with a lot of potential. Due to the aging population, many enterprises are looking to make healthcare cheaper and more efficient. Some of GOOGL’s projects are likely to help with that. With a project called Verily, Google is working to gather and analyze health data in order to better manage diseases. The firm has developed devices like smart contact lenses that can monitor glucose levels as well as an eye scanner that could eventually asses people’s cardiovascular risk.
Another big bet for Google has been Project Loon, which aims to deliver internet and wireless phone service using solar-powered balloons. The idea may sound far-fetched, but Alphabet has already successfully tested the concept in New Zealand and recently inked a deal with Telkom Kenya to offer 4G service to unconnected areas of the country starting as early as 2019.
The Bottom Line on GOOGL Stock
Google’s moonshots, listed as “other bets” on its financial disclosures, are often criticized because they are constantly generating losses which weigh on GOOGL stock. However, it’s important to note that several of those projects are actually quite promising, with some of them- like Project Loon- on the verge of turning a profit.
GOOGL stock is a good buy now because of its strength in the advertising space, but it’s a good buy for the future because of Alphabet’s other bets, despite the fact that they aren’t profitable quite yet.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
