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As Losses And Costs Rise, Alphabet Promotes Waymo’s Promise

The Axis

The bets aren’t paying off, not in a general way, not yet. But the miles are adding up. And that’s officially pleasing to Google’s parent company as it continues to devote more money to its self-driving technology Waymo unit and other experimental projects organized under the umbrella of Other Bets.

Alphabet reported its second-quarter financials on Monday (July 23).

Among the ad revenue growth (24 percent year over), better-than-expected revenue and earnings, and further gains in not only mobile search, but also YouTube and desktop (yes, desktop), Alphabet reported revenue for its Other Bets unit of $145 million, up about 49.5 percent from the same period last year. That revenue primarily came from Fiber and Verily, said Alphabet Chief Financial Officer Ruth Porat in the company’s post-earnings conference call, referring to the company’s broadband and IPTV service, along with its life studies research program.

Stock Compensation Growth

The Other Bets unit also reported an operating loss of $732 million, a 16 percent increase from the second quarter of 2017. Stock-based compensation for Other Bets, meanwhile, hit $127 million — about 88 percent of the unit’s quarterly sales, and up 57 percent year over year. According to some observers, that increase might indicate that hiring costs for Waymo employees are increasing as the market for connected and self-driving automotive technology continues to grow.

Porat highlighted the Waymo self-driving program, describing the progress shown there and in some other areas as “pleasing.” She noted that Waymo “expanded its partnership with Fiat Chrysler with the option to add up to 62,000 Chrysler Pacifica minivans to its self-driving fleet. And Waymo announced that it has driven more than eight million fully autonomous miles, with most of those on city streets,” she said.

According to Waymo CEO John Krafcik, vehicles powered by Waymo technology are logging 250,000 miles per day. The technology has undergone five billion hours of simulations, he said. Though most testing takes place in California, those operations also are conducted in Arizona, Texas, Georgia, Michigan and Washington State.

The vote of confidence during the conference call follows news early this year that Waymo and Jaguar Land Rover would create what they are calling the world’s first high-end, electric, fully self-driving vehicle for Waymo’s transportation service.

The partnership involves a vehicle called I-PACE, which will meld Jaguar’s knack for design with self-driving technology by Waymo, all developed in-house. Waymo plans to add up to 20,000 I-PACE vehicles to its fleet over the next few years, which it said is enough to drive around one million trips in a typical day. With the partnership, Waymo said it can offer its self-driving services to communities around the country.

Investor Impatience?

Waymo has certainly captured the attention of investors, many of whom seemed pleased with such Other Bets in the wake of Alphabet’s positive Q2 results. “We believe strong growth potential remains in opportunities with cloud, hardware, YouTube, Waymo and other bets, which should add significant value over time,” said Andy Hargreaves of KeyBanc Capital Markets.

That said, other investors might be approaching a state of impatience about the Waymo efforts — or, at the least, the metrics used to judge its success. That’s according to an analyst on the conference call Monday who said he’s been getting “a lot of questions about Waymo” and then asked Alphabet executives about the best ways to think about the “capital allocated to the Waymo business in the coming years.”

Porat repeated that Waymo remains is its “very early stages,” but offered that in 2018, “the focus has been to launch the commercial rider program in Phoenix that we’ve talked about, looking to do that by year-end,” according to a transcript of the call. “We’re expanding our testing to more states. We’re also working on additional areas such as logistics and deliveries. We talked this past quarter about licensing the technology for personal use vehicles, and we’re also focused on working with cities to help strengthen public transportation.”

News will no doubt continue to drip out about Waymo, and Alphabet certainly has the resources and talent to keep backing Other Bets projects. But as the post-earnings conference call demonstrated, investors are going to eventually want more information to justify the company’s optimism about its self-driving plans.

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