It's the curse of being a company with a $xxxB main product line. It becomes really hard to justify projects that could at best contribute a few million to your bottom line...
That doesn't track. As long as the project is generating at least a single dollar (TVM-adjusted) and you're not constrained on resources (SWEs, labs, etc.) that could be reassigned to higher yielding projects, that's all the justification you need.
The market tracks how profitable you are as company. Tech companies get higher multiples on their valuation because they can be more profitable than a manufacturing company.
This was one big reason why the trend is for conglomerates got broken apart, it lets their high profitability companies get valued higher.
Google focusing on products that are break even or slightly profitable hurts them for this very reason.
So if you are the CFO of google the decision you make is do we keep some of these low profitability companies around and have them drag our multiples down or do we cut them when its clear they won't become high margin profitable businesses.
Given that the CFO of google gets most of their compensation in stock its not surprising that they chose to have a higher multiples applied to them, and therefor higher stock prices, than lower ones.
... yeah, but that's just not how it works inside Alphabet. It's not rational but plenty of us would share that this is absolutely the logic that drives day-to-day business decisions across all of Alphabet's business units today.
office_drone|1 year ago
chollida1|1 year ago
The market tracks how profitable you are as company. Tech companies get higher multiples on their valuation because they can be more profitable than a manufacturing company.
This was one big reason why the trend is for conglomerates got broken apart, it lets their high profitability companies get valued higher.
Google focusing on products that are break even or slightly profitable hurts them for this very reason.
So if you are the CFO of google the decision you make is do we keep some of these low profitability companies around and have them drag our multiples down or do we cut them when its clear they won't become high margin profitable businesses.
Given that the CFO of google gets most of their compensation in stock its not surprising that they chose to have a higher multiples applied to them, and therefor higher stock prices, than lower ones.
vineyardmike|1 year ago
But also more realistically, Google reports their margins to wall street and a ton of barely profitable ventures would drag that down.
counters|1 year ago