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Alphabet is special among the most valuable companies. The conglomerate uses its hugely profitable ad business to bankroll experimental research projects. These "Other Bets," which include self-driving cars, health care, and internet-beaming balloons, make a lot of negative money.
Thursday, Alphabet reported earnings for the second quarter. Other Bets had an operating loss of $989 million on revenue of just $162 million ("just"). Compared to Q2 2018, that's 35% more losses but 12% more revenue.
So what is the highest-profile Other Betsy up to?
You know it's Waymo
Waymo, which UBS confidently estimates to be worth between $25 billion and $135 billion, is a well-capitalized machine. In return, it's netted significant achievements, including clocking over 10 million miles on U.S. roads and 10 billion simulated miles. It's considered the alpha of the self-driving pack.
Another Alphabet perk? Teaming up with Alphabet sibling DeepMind. Waymo uses the skunkwork lab's training methods for advanced neural networks to improve its driving software. The research collab has improved Waymo's models' abilities to detect pedestrians. For a self-driving vehicle, that seems pretty important.
Zoom out
As any emerging tech analyst knows, advanced R&D isn't just a line item in Big Tech budgets. It's a central part of the business—eventually put to work in feed-sorting algorithms, roboticized distribution centers, or sleek consumer products.
Alphabet's moonshots are uniquely risk-tolerant, high-stakes, and expensive. Take Waymo:
- Risk tolerance: Though it has a money-generating robotaxi service in metro Phoenix, Waymo doesn't have a clear or immediate path to profitability. Even CEO John Krafcik has said autonomous vehicles (AVs) are decades from ubiquity.
- High-stakes: Goldman Sachs projects the AV market will reach $96 billion by 2025.
- Expensive: Google spent over $1.1 billion on its self-driving program between 2009 and 2015 (before it was named Waymo).
+ Throwback: When we ran our transportation survey, 28% of respondents pegged Waymo as a driverless leader.