Founder Larry Page wisely operates under the belief that a technology company that doesn't keep developing new ideas eventually will lose its relevance. The scale of the ambitions, however, was starting to get scary. Worse, newly rechristened Alphabet hadn't given out much information about costs or capital expenditures, which left investors to wonder just how much they were eating into the company's finances.
Amazon figured out something similar. The online retailing titan started revealing the performance of its Amazon Web Services (AWS) division soon after aggressive price cutting in the industry spooked shareholders. It turns out AWS is growing at 70 per cent a year with an operating margin of 28 per cent - and rising. Amazon has added nearly $90 billion to its market capitalisation since disclosing the figures in the first quarter of 2015.
After reporting numbers for its so-called Other Bets, Alphabet's shares overtook Apple's $540 billion as the world's most valuable company in after-hours trading. Revenue was comparatively tiny at the group of ventures that includes Google Fiber, Calico and X, and they collectively generated an operating loss of $3.6 billion. Capital expenditure, however, was only $869 million in 2015. Some analysts had been expecting a sum three times higher. The figure will grow as ideas gather momentum, but the early restraint is welcome.
By separating out Alphabet's wilder dreams, it clears up the success at search, Chrome, YouTube, Android and other more established businesses. There, sales increased 14 percent from a year earlier as more people clicked on ads. Even as the shift to mobile dampened revenue per click, operating income grew 23 percent to $23.4 billion last year.
In a stroke, the company has both assuaged fears over its lofty ambitions and reassured investors it can keep growing and profiting nicely from its main business. Alphabet for now can have it both ways.
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