Have you seen the burger-making machine Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) venture-capital arm invested in? If you haven’t, you might want to get more acquainted with Creator, because it holds the future for Alphabet stock.
The robotic creation can make a perfectly tasty burger in five minutes or less for just $6. Watching a burger being made reminds me of the book-turned-movie, “Charlie and the Chocolate Factory,” that I watched and read as a kid.
I’m sure a lot of engineers found their calling by watching the original version starring Gene Wilder.
Alphabet’s venture-capital arm goes by GV these days — it used to be called Google Ventures. It makes investments in the consumer, enterprise, life sciences and frontier tech sectors. Creator falls under Frontier Tech and is overseen by GV general partner Andy Wheeler.
GV itself falls under the company’s “Other Bets,” which also includes Access (the division responsible for Google Fiber), Verily (specializing in the collection and management of health data), CapitalG (growth equity investor) and Waymo ( a self-driving company that’s got a commercial test running in Arizona).
Together, these bets accounted for just $332 million of Alphabet’s $75.3 billion in revenue through the first six months ended June 30. From the $332 million in sales, it had an operating loss of $1.9 billion.
That would be a problem if the $75.3 billion in sales didn’t generate $19.7 billion in operating profits over the same period.
If you own GOOGL stock, the thought of Alphabet going out of business is not on your radar. It generated almost $14 billion in free cash flow in the first two quarters of fiscal 2019.
Back to the Willy Wonka Machine
Alphabet generates a majority of its revenue from advertising.
However, its cloud business, Google Play, Nest (the maker of smart thermostats), along with YouTube subscriptions have become such an important part of the company that it accounts for these sales as “Other Revenues” within the Google division.
Other revenues account for 15.4% of Alphabet’s overall revenue while its other bets represent less than 1% of its sales.
Yet, experiments such as Creator will deliver the company’s next significant breakthrough.
Remember, Google wasn’t created to be a commercial success. Larry Page and Sergey Brin created the search engine “to organize the world’s information and make it universally accessible and useful.”
What’s flowed from that is an incredibly lucrative license to print money.
The Philosophy of Alphabet’s Other Bets
It’s unlikely that a robotic burger-making machine is going to change the way we live to nearly the same extent as the search engine or smartphone. But, it does push us to think about how humans should be spending their time.
Is it the best use of anyone’s time or talent to be flipping burgers all day?
Take the chef away from much of the work associated with prepping and running a kitchen and allow them to think about the bigger picture. You’ll find a restaurant’s operations and quality of food would improve.
Consider Warren Buffett.
The world-class investor spends most of his time thinking and reading, not occupying his time with busy work. Most people spend a majority of their time running around like chickens with their heads cut off, doing very little thinking. Instead they send lots of unnecessary emails and attend time-wasting meetings.
The Bottom Line on Alphabet Stock
Alphabet’s other bets cut straight to the heart of the matter which is that we need to work smarter, not faster.
A business that makes or saves people time and money will always be in demand in the 24/7, 365-day world in which we live.
By continuing to invest in its other bets, it’s got a much better chance of developing the next great idea that will change the world. And that, more than anything, will influence the GOOGL stock price.
Don’t you think?
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.