Signs of Progress at Alphabet's Moonshots

By Markets Fool.com


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Image source: Alphabet.

As many cliched motivational posters have informed me more than once: "Shoot for the moon. Even if you miss, you'll land among the stars."

Though possibly motivating to my third-grade self, today I find myself wondering whether the same principle applies in the case of tech giant Alphabet's own moonshots.

Several recent headlines have painted the current state of affairs at several moonshots as fraying and chaotic. However, in an effort to set the record straight, several key Alphabet executives defended their "Other Bets" progress with a series of recent public appearances.

Verily turns profitable
At a recent company town hall, Alphabet co-founder Sergey Brin announced its life sciences moonshot -- Verily -- has officially become profitable.Granted, Brin hedged his disclosure slightly, saying Verily had become profitable "on a cash basis" as opposed to the GAAP accrual-based accounting required in all SEC filings. Either way, the news paints Verily as further along in executing on its business model than previous media accounts.

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Image source: Verily.

The comments were a clear attempt on Brin's part to counter the recent surge in negative media reports surrounding Alphabets Other Bets, and Verily specifically. Perhaps most notably, an article late last month appearing in Stat, the Boston Globe's medical periodical, strongly criticized Verily founder Andy Conrad. The article claims Verily has undergone a "talent exodus" as the result of Conrad's ineffective leadership, largely paralleling the purported internal turmoil gripping Alphabet's Nest moonshot as well.

Re/code reported in late March that sources say Verily likely generated less than $10 million of the $448 millionOther Bets produced in FY 2015. It isn't clear whether Verily, which produces revenue via licensing deals with pharmaceutical companies and other medical bodies, was able to turn a profit on those sales, or if the segment achieved profitability after gaining additional business more recently. Either way, Brin's reported statement presents Verily in a slightly more positive light, albeit one that reeks of PR spin.

What about Nest?
At the same town hall, Nest CEO Tony Fadell took the stage to address the recent spate of negative media coverage that has surrounded the smart home appliance maker, and Fadell personally.

Image source: Nest.

At the event, Fadell is quoted as saying, "Of course, we're not perfect. No company is. Nest isn't perfect. I'm not perfect. No one's perfect. But we know what our problems are. We have been addressing them over the last two years. And, frankly, we have more room to go." He also added that he was "incredibly disheartened" by the reports of Nest's apparent internal discord.

For those unfamiliar with this intriguing Alphabet subplot, a report from The Information last month shed light on apparent operational and cultural tensions at the company Alphabet purchased for $3.2 billion in 2014. The report aimed much of the criticism at Nest's well-known CEO, Fadell, who gained fame in tech circles for his leadership of the original iPod's development at Apple. Fadell's apparently combative management style rankled many within Nest, especially the leadership from its acquisition Dropcam, which reportedly led to meaningful employee departures and missed financial goals at Nest.

All told, both Fadell and Brin said the right things to do their part to quell employee or investor concerns about the state of affairs of two of Alphabet's moonshot. What's less clear, especially in light of these recent reports, is whether any of the company's high-potential Other Bets will actually prove capable of realizing their full potential. These types of long-term bets take time to manifest results. However, in light of recent headlines, investors should remember that such investments remain far from "sure things" today.

The article Signs of Progress at Alphabet's Moonshots originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Andrew Tonner owns shares of AAPL. The Motley Fool owns shares of and recommends GOOG, GOOGL, and AAPL. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.