Tuesday in CE: Google Q1 Earnings Show Nest Isn't Paying Off, Yet
Alphabet, parent company to Google, has reported their first quarter earnings for 2018 and, despite growing YoY, show a loss for the newly acquired brand Nest. To be clear, there really is no doom and gloom to their earnings report. In fact, Alphabet's $31.15 billion has smashed Wall Street estimates on sales and profits, with steady year-over-year growth over last year's $24.75 billion in the same quarter.
The being said, Nest is a slightly different story. Nest was reorganized back into Google after being a separate subsidiary of Alphabet, allowing their hardware and software team to dedicate more time and resources to the smart home play. It further complimented Google's play to make one cohesive smart home play, something they have strived for between the Pixel and Google Home verticals.
So to look at how that pays off, you need to compare the "Other Bets" section of Alphabet to the standard Google revenue line item because Nest was separate entity when casting the earnings report. That "Other Bets" section is the reason Alphabet was formed, as it allows the company to invest in technologies like self-driving cars without damaging Google's reputation or cash flow.
With the realignment, Google has restated all of its Nest earnings. That leaves Nest with a $726 million bump in revenue and a $621 million loss throughout the year.
The big question for me is: if Google loses that much on thermostats, how much is it costing the company to establish itself as a maker of smart speakers, displays, and phones? https://t.co/KZcomwjkLv
— Janko Roettgers (@jank0) April 23, 2018
So yes, Google has the money and Google would love to spend it, as seen in the Pixel and Google Home space. But this brings up an interesting narrative around Ring and Google's smart home play in general. Google CEO Sundar Pichai didn't reveal exactly how many Nest were sold in the last year, but he says that it was more than the previous two years combined. But unlike fending off Apple's iPhone and Microsoft's Netbooks with the Pixel and Chromebook respectively, Nest and Google Home are fighting Amazon's Echo and seemingly falling behind... for now.
That being said, the double down on rolling Nest back into Google immediately counteracts any worrying. Growing Google's ecosystem into one cohesive A.I. play is a smart move from the company that is used to being clever. “All of Google’s investments in machine learning and AI, they can very clearly benefit Nest products. It just makes sense to be developing them together,” Rick Osterloh, the head of Google’s hardware division, told CNET in an interview at the time of the Nest announcement. “It’s the natural thing to evolve to.”
All that to say, it's clear that Google has its work cut it out for it, but we applaud them for turning a billion-dollar consumer electronics arms race into a competition to see which company can be more agile.