With Facebook and Netflix stumbling without recognised corporate venturing units, it has been interesting to see the other big four US internet companies, Microsoft, Amazon, Alphabet and Apple, with powerful CVC investments report or predict strong results.
Alphabet was the most clear-cut as it reported better-than-expected second-quarter earnings last Monday, driving Alphabet shares to a new all-time high the following day. It generated adjusted earnings per share of $11.75 versus the Wall Street consensus of $9.59 for the quarter, according to cable news provider CNBC. Alphabet also posted a $1.06bn gain in its equity investments for the time period, which translated into $1.17 EPS of the outperformance.
“Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet,” said Ruth Porat, CFO of Alphabet and Google in the earnings press release Monday.
Effectively, Alphabet is made up of its alpha – advertising to its search engine Google – and Other Bets, such as those made through its corporate venturing units, such as GV, CapitalG and Gradient and its balance sheet.
These other bets brought in $145m of revenue in the April to end-June three month period but an operating loss of $732m.
As a result one well-known investor told CNBC Alphabet had a shot of being the Berkshire Hathaway of tomorrow.
“What I’m really talking about is the diversified nature of what [Alphabet is] building away from the ad platform, in much the same way as Berkshire reinvested the float from insurance premiums into other investments. I guess I am also talking in terms of longevity, not just size,” Josh Brown, CEO of Ritholtz Wealth Management, said in an email Tuesday to CNBC. “This quarter witnessed a host of Google’s other investments throwing off profits. Larry and Sergey were very open about their intention to create something Berkshire-like when they first announced the new structure and Alphabet.”
With Alphabet’s Chinese peers, particularly Baidu, Alibaba, Tencent and JD having similar-looking models of reinvesting heavily in other bets through corporate venturing then the big eight global tech companies are converging on similar strategies but how the oligopoly shakes out and whether newer groups or Facebook and Netflix join in or catch up in their approaches remains probable.