Alphabet Inc (NASDAQ:GOOG) is notorious for throwing large amounts of money at so-called “moonshot” projects. Most initiatives will fail to see the light of day—I’m looking at you, “Google Glass”—but when one does pan out, the returns generated have the potential to more than make up for the almost one billion dollars the company spends on investment projects. GOOG stock is up about 40% over the past year.
Let’s take a look at what Google is working on that, if successful, could send GOOG stock soaring.
In early March, Google announced that it is launching a pilot of its “Hands Free” payment system in the South Bay area of San Francisco. Users can download the Hands Free “Android” or “iOS” app and add their name, initials, a picture of themselves, and a payment method to their account.
Once the app is installed and an account is created, the Hands Free app uses Bluetooth, Wi-Fi, and location services to detect if you are in a participating store. When you get to the cash register, all you have to say is, “I’ll pay with Google.” The cashier will ask for your initial and use the picture you provided on your Hands Free profile to confirm your identity.
Google even wants to take the idea of Hands Free a step further. The company is also experimenting with visual identification so you won’t even have to utter a sentence. Cameras inside the store will capture your image, verify your identity, and confirm the payment.
So what does Google hope to achieve with this initiative? The mobile payments market is set to explode and Google obviously wants a piece of the action. Since Google rolled out “Android Pay” last September, the company has averaged 1.5 million new registrations each month in the U.S. There are also about 2.0 million locations that accept the payment method. (Source: “Testing, Testing – One, Two, Hands Free,” Google Commerce Blog, March 2, 2016.)
Additionally, the mobile payments market is expected to more than triple in 2016, from $8.71 billion to $27.05 billion worth of transactions. (Source: “How mobile payments will grow in 2016,” Fortune, October 29, 2015.)
In the company’s latest earnings report, Google said that from all of its “Other Bets” expenses, it spent the most on laying fiber optic cables for its Internet service, “Google Fiber.” (Source: “Google’s Most Expensive Moonshot? Laying Internet Cables,” Bloomberg, February 1, 2016.)
Google Fiber Internet service launched about four years ago and is now available in several cities, including Kansas City, Atlanta, Austin, San Antonio, Salt Lake City, Charlotte, Nashville, Provo, and Raleigh-Durham, with expansion planned for several more major cities.
Google says that with Fiber, it’s focused on offering fast Internet service for cheaper prices than cable providers. Google offers a download speed of 1,000 Mbps for $70.00 per month. By comparison, the average Internet speed in the U.S. is 12.6 Mbps. (Source: “Average Internet Speeds Up, But U.S. Still Has Work to Do,” PC Mag, December 18, 2015.) Comcast recently launched a 2,000 Mbps service on its existing cable lines, but it costs significantly more than Fiber, at $300.00 per month.
Google is developing a virtual reality (VR) headset that doesn’t rely on a smartphone, computer or game console like the current crop of devices in or about to enter the market. (Source: “Google Developing Stand-Alone Virtual-Reality Headset,” The Wall Street Journal, February 11, 2016.)
Google’s device would be a standalone headset, unlike Facebook’s “Oculus Rift” headset, which has a cable that runs from the headset to an Oculus-ready PC. Reviews have pointed out that it’s hard to avoid tripping on the cord or getting tangled in it.
Samsung’s “Gear VR” headset needs a “Galaxy” smartphone to work, which the Google VR headset would also be free of.
It looks like Google’s VR headset is going to be a middle ground for consumers. While it won’t be as powerful as the Oculus Rift, it will be as portable as the Gear, but with a much more immersive experience and more computing power behind it
Google is developing the headset just in time, as virtual reality is about to be huge. Market research firm TrendForce predicts that the market for VR hardware and software will reach $70.0 billion by 2020. (Source: “Virtual Reality Could Generate $70 Billion in Real Money by 2020,” Re/code, December 3, 2015.)
Virtual reality is also a way for Google to capture a new advertising market. Major brands such as The Coca-Cola Co, HBO, and Nissan Motor Co Ltd have already tested the space with ads. As VR takes off, ad revenue could be another boon to GOOG stock.
The Bottom Line on GOOG Stock
Google’s “Other Bets” category, which is the name the company uses to describe its moonshot projects, had sales of $448 million, with an operating loss of $3.6 billion in 2015. The category is losing tons of money for the company but Google more than offsets that loss with revenue from its search ad business. But if just one project pays off, that could be the catalyst to send GOOG stock soaring.