In this Industry Focus: Tech segment, host Dylan Lewis is joined by two summer interns to go over what CEO Sundar Pichai had to say about YouTube this quarter, just how big YouTube has grown, and more. Also, the hosts look at some of the company's "other bets" segments (think Waymo and Fiber) and how any of them could be huge for Alphabet in the next few years and decades.
A full transcript follows the video.
This video was recorded on July 28, 2017.
Dylan Lewis: One of the other main properties that there was a lot of attention paid to on the call was YouTube. It seems like every conference call, I'm hearing more and more about what's going on there.
Connor Lott: Yeah. Google CEO Sundar Pichai did say that YouTube generated over 1.5 billion monthly viewers, and made an extremely hot market for video advertising. So, it should be Alphabet's second-largest revenue-generating enterprise, after Google's core internet search business. We say "should be" because they break it out between Google and Other Bets. So, they're very non-transparent, or opaque, you might say, in delving into what is actually making money for them. YouTube, with its 1.5 billion monthly viewers, if it were categorized as a social network -- as, say, Facebook -- it would be the second-largest social network in the world.
Lewis: Which is baffling.
Lott: Yeah, it's incredible.
Aneesh Susarla: I read this interesting report that said, if YouTube was a stand-alone business, it would have a market cap of around $75 billion, which is pretty insane. So, definitely, YouTube can serve as a driver for growth.
Lewis: Some of the other places that Alphabet has been looking for growth is the Other Bets segment, which makes up the rest of that pie chart of revenue. Right now, it is just under $250 million. We always hope to get some really interesting color on what's going on with these futuristic, nascent tech bets that Alphabet's making. Unfortunately, it's always kind of a disappointment. We didn't really get a ton with this call, right?
Lott: Right. Just a fun fact that we're going to throw out here, because we're on the YouTube trend right now. Aneesh, what do you think the most viewed video on YouTube is?
Susarla: I would say "Gangnam Style," the PSY music video.
Lott: Up until early 2017, late 2016, you would have been right. Now it is Wiz Khalifa's "See You Again." So, Wiz is making it happen on YouTube.
Lewis: I wonder with stats like that: Those are not songs that have longevity; they are pop tunes. I wonder, if some of the really seminal rock songs came out in the digital age, where they would stack up, because it's an unfair comparison.
Lott: It is. You would think Queen or AC/DC or some enormous band, Led Zeppelin, would be the king of the hill. But, no, we have Wiz Khalifa, with Luis Fonsi's "Despacito" garnering 2.8 billion views in like six months.
Lewis: It's on your heels; watch out.
Lott: Yeah, it's coming in hot.
Lewis: That's the song of the summer. I've heard that everywhere.
Lott: They are not going despacito, they're definitely not going slow.
Lewis: No. It's muy caliente, I guess. Looking at these results, I don't see anything super thesis-altering with Alphabet. It's a massive company. At this point, it's tough for them to meaningfully move the needle and grow the business. I don't think this is a stock or a business that's going to be a two- or three-bagger any time soon, simply because it's a $660 billion market-cap company. But, when you look at this business, the internet properties that they own are so strong. The fact that they are posting 20% growth with this ad business is amazing. The fact that they have 1.5 billion monthly actives on YouTube, also amazing.
I kind of look at what they have here with this cash-cow business, and then this Other Bets segment as a stable business and a mini VC [venture capital] fund. You have these bets like Loon, which is all about connectivity; Verily, which is all about life sciences; Nest, which is connected-home; Fiber, which is all about broadband; and Waymo, which is all about autonomous vehicles. These are all emerging tech plays, and if any of those take off, that's where you could see some really explosive growth. Of course, the core ad business is still moving along fine.
Did I hit it? Do you guys have anything else?
Lott: I think you hit it right on the head. Just looking at Waymo by itself, that's already changing the automobile market with self-driving cars. So, yes, if one of these properties takes off and really revolutionizes its vertical, that could be incredible for the company.
Lewis: Yeah. I think it's not a stock to own if you want gaudy tech growth, but if you're fine with chugging along and maybe having some really awesome plays in these nascent tech spaces, certainly a stock to continue to watch.