How Alphabet’s Google is Spending its Money

Alphabet, Google’s parent company earns in the tens of billions. Last year, the company’s sales touched $74.98 billion, bringing home nearly $16.35 billion in net income. It’s not really a surprise, then, that Alphabet is just one step away from becoming the world’s largest company in terms of market cap.

If you want to know about the company’s past all you need to do is look at where their money is coming from, but if you really want to know where the company’s future lies then you need to look at where the company is investing the money it earns.

There are three key metrics that tell us what Alphabet is moving towards – research and development expenses, capital expenditure and acquisitions. Put together, these three areas will give us a clear picture of where the company is headed in the future.

Alphabet’s R&D Expenditure

In 2015, R&D expenses stood at $12.28 billion. The company spent 16.3% of its revenues on research, up from 12.9% in 2013. One of the key reasons for the spike is because the company increased its R&D headcount by 16% last year and 27% in 2014.



Alphabet’s Capital Expenditure

Alphabet’s capital expenses have increased considerably in the last three years, with a bulk of their investments going towards Google, and a relatively smaller amount towards their moonshots segment, Other Bets. It is natural that the company would prefer to spend the most in the segment that has the ability to earn the most, their search and advertising business.


Alphabet’s Acquisition Spend

Google has slowed down on this front after a slew of acquisitions that now total over 190 companies. The last big ticket acquisition Google made was in 2014 when it bought Nest Labs, a connected device maker for $3.2 billion. Since then the company is still busy buying small companies, but yet to make a big splash in the acquisitions market. If the rumor mills are true, then Google might end up buying Twitter, and it will definitely be in the order of tens of billions if not more, giving the company’s social media presence a huge boost.

Alphabet is sitting on a cash pile of more than $70 billion, and their long term debt is in the order of $1.99 billion. Now that they’ve clearly segregated their Google business from their Other Bets, the company is likely to once again get busy shopping for more companies sooner rather than later. That will set the tone for their future direction.

For now, they’ve stepped up their R&D spend on headcount, which is why the expenses in that area are on the increase. With their focus now clearly on making Google even bigger and getting more accountability from their Other Bets unit, it should be interesting to see what develops over the coming months.

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