Google's CFO defended Alphabet's setbacks but struggled to justify its purpose

Google's transformation into the Alphabet holding company has had a rocky first year.

So Ruth Porat, the former Morgan Stanley banker who is now Alphabet's CFO, rolled up her sleeves to defend the move to antsy analysts and investors on Thursday.

Porat kicked off Alphabet's Q3 earnings call with a lengthy defense of the corporate restructuring that took place a year ago and which was intended to turn Google into a collection of independent, game-changing companies.

"We believe our structure provides the transparency and oversight to make smart choices," Porat said on the call.

She didn't directly mention the string of executive departures, the layoffs, or the billions of dollars in losses that have plagued Alphabet's diverse Other Bet companies, which are focused on everything from self-driving cars to high-speed internet service. On Tuesday Google Fiber, one of the most costly Other Bet ventures, announced that it was halting expansion plans and cutting 9% of its staff.

Porat tried to make the case that such setbacks are all part of the bigger plan:

"As we reach for moonshots that will have a big impact in the longer-term, it's inevitable that there will be course corrections along the way and that some efforts will be more successful than others," Porat said.

"Over the past year, for example, you've seen us make progress and accelerate our efforts in some areas, while re-positioning or taking a pause in others."

The Other Bets businesses posted a combined operating loss of $865 million in the third quarter. Revenue was up 40% year-on-year, but at a total of $197 million, it's not surprising that some are questioning whether the return on investment is worth it.

A tough argument to make

Porat is viewed by the Street as the financial disciplinarian, the CFO who is making sure that the various Alphabet companies don't spiral out of control with runaway spending.

That's why the CFO's efforts to justify the various "moonshot" projects on Thursday struck something of a discordant note.

Unlike Alphabet CEO Larry Page, who can lean on his reputation as a tech visionary to make the case for big bets, Porat's arguments stand up only when underpinned with solid economic logic.

And that's tough thing to do when you're an online ad company building solar-powered balloons, self-driving cars and robots.

"Because most of our Other Bets are pre-revenue, the Other Bets revenue line provides only partial insight regarding our progress," Porat said. Instead, she suggested investors "supplement" their view of the moonshot projects with "insight regarding product progress."

But the product progress she cited was hardly the type of stuff to instill confidence.

Nest's newest product, an outdoor version of a video camera it acquired two years ago, looks less like innovation than stagnation.

And while Porat bragged about the Google self-driving car project's recent milestone of 2 million miles driven, the company still hasn't brought the cars to market, despite being one of the first companies to embark on the project more than 7 years ago. Meanwhile, Uber and Tesla are making strides in autonomous driving.

If Alphabet wants to keep investors on board with its moonshot quest, maybe it's time Larry Page gets back on the earnings calls.

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