Google makes a lot of money from digital advertising. Of the $40.5 billion Google's parent company Alphabet reported for its Q3 2019 earnings last week, $33.9 billion came from advertising across Google Search, Maps, Gmail, YouTube, Google Play, and Google Shopping.
While Alphabet's Q3 earnings missed expectations amid high operating costs and lower profits, revenue remained high for both advertising and Google's growing cloud business. As has been Google's prevailing theme, it's perfectly willing to take that multi-billion dollar cushion and invest heavily (and absorb significant losses) from its "other bets."
That was the thinking behind 2015's Alphabet corporate restructuring in the first place. Google keeps the established advertising, cloud, Android software, and devices businesses under CEO Sundar Pichai while founders Larry Page and Sergey Brin go nuts on all their moonshot ideas, from self-driving cars, drones, and internet balloons to next-gen health wearables, renewable energy, and beyond.
The other bets include projects currently in the Google X incubator, as well as those that have "graduated" into spinoff companies under the Alphabet umbrella, including Waymo, Loon, Wing, Makani, Verily, and Google Glass Enterprise. Alphabet has also discontinued or shut down numerous moonshot projects, all of which drag on the company's bottom line.
While Google's operating income has continued to rise each quarter over the past two years, its operating losses (when expenses exceed profits) from other bets have done the same. Alphabet's moonshot losses have risen from $571 million in Q1 2018 to $941 million in Q3 2019.
But when you're a tech giant as massively profitable as Alphabet, it's worth chalking up some losses for the sake of technological progress. Maybe its $2.1 billion acquisition of Fitbit will help Alphabet even out the balance sheet a bit as it aims to catch Apple in the wearables market.