Bloomberg News/Landov
Alphabet Inc.’s new financial disclosures made it possible for investors to actually figure out the financial performance of one of its individual businesses, a rarity for Google’s parent company.
In the case of Nest, it’s pretty obvious why Alphabet would try to keep it hidden.
The disclosure came from new reporting procedures for Alphabet that started with its first-quarter report delivered Monday. The headline change was a requirement that Alphabet disclose the value of its investments, which led to a gain of $3.03 billion from an investment in Uber Technologies Inc., though executives largely avoided any additional disclosure about it.
The Nest move was quieter, but provided the opportunity for more detail. The internet search and advertising giant moved the Nest business — which Google bought for $3.2 billion in early 2014 — out of its “Other Bets” division and packaged it with Google’s other hardware revenue. In doing so, Alphabet restated its financial performance last year with Nest in that division, so it was possible to calculate Nest’s quarterly revenue and losses for 2017 by comparing the original statements and the restated financials.
Going back to Alphabet’s original 2017 revenue and losses showed that for the full year of 2017, Nest had total revenue of $726 million, growing every quarter: $112 million in the first quarter, $151 million in Q2, $185 million in Q3 and $278 million in the fourth quarter, when consumer products got a boost during the holiday season.
Nest’s losses were nearly as big as total revenue, however, totaling $621 million for the full year on an operating basis. Nest actually caused the “Other Bets” operating losses to decline by leaving, which is a hard thing to do considering that segment mostly comprises young businesses that require capital to grow into moneymaking businesses.
MarketWatch asked Alphabet to check our math on the Nest segment, but a spokesperson said the company had nothing to say beyond its original statement. That isn’t much of a surprise: Alphabet seems to pride itself on not disclosing the performance of its segments, even as its YouTube business is possibly nearing $13 billion in annual revenue. The company faced a lengthy back and forth with the Securities and Exchange Commission, which tried as hard as it possibly could to get more information about its different businesses, and even the regulator failed.
Analysts continue to try to get more information. Alphabet Chief Financial Officer Ruth Porat basically said nothing further about the company’s $3.03 billion gain on the company’s call with analysts, and she and Google CEO Sundar Pichai deflected questions about Google Cloud performance after revealing that business surpassed $1 billion in revenue last quarter.
Alphabet investors now know that the Nest business is losing money and still not producing $1 billion in annual revenue. It would be nice to counter that knowledge with numbers on some of its larger and more profitable businesses, like YouTube, but Alphabet seems determined to keep as much of its business a mystery as possible.
After initially gaining after earnings were released Monday afternoon, Alphabet shares eventually declined to roughly even in after-hours trading. Class A shares have increased 25% in the past year, while the S&P 500 has gained 13.7%.