Alphabet’s Verily Plans Cost Cuts Amid Pressure on Bets to Rein In Spending

Verily is part of Alphabet’s Other Bets unit.
Verily is part of Alphabet’s Other Bets unit.

Summary

  • Google’s parent is focusing on turning companies developing ambitious tech into commercial successes

A cost-cutting drive by Google’s parent is intensifying for a group of businesses whose ambitions include extending human life and developing self-driving cars.

Verily Life Sciences, a unit of Alphabet that offers data-driven healthcare products, is planning additional expense cuts after losing more money than expected so far in 2023, according to documents reviewed by The Wall Street Journal. The company already laid off employees and discontinued some products earlier this year.

Verily posted wider operating losses than expected this year through June, missing its projections by $17 million, and should “migrate to a startup culture of scrappy resourcefulness," according to an internal presentation. Last year, Verily’s operating losses totaled $568 million on revenue of $559 million, according to a financial statement reviewed by the Journal.

“We must meet the expectations we set with our investors," the presentation showed. Verily’s largest investors include Alphabet, private-equity firm Silver Lake and Singapore’s Temasek fund.

Verily is part of Alphabet’s Other Bets unit, a collection of businesses that operate separately from Google under the holding company that former CEO Larry Pageestablished in 2015. The businesses have racked up more than $30 billion in losses since Alphabet began separately reporting their financial performance.

The Other Bets businessesnow feel pressure to rein in spending and turn their research into commercial profits, said people familiar with their operations, a shift after spending billions of dollars looking for the internet giant’s next big breakthrough.

Their new, more conservative approach shows how far Alphabet’s leaders are willing to go in efforts to cut costs after originally using the businesses to signal ambitions in a wide range of technically challenging areas. Google’s core business has also stagnated this year during a slowdown in digital advertising.

In an address to employees last week, Verily Chief Financial Officer Utpal Koppikar said the company was performing below expectations, but Google would still provide additional funding if necessary, according to people familiar with the matter. Verily’s products include a software tool for managing clinical-research trials and an insurance offering for employers with self-funded health plans.

A Google spokesman said the Other Bets businesses were making progress toward commercial success, citing recent expansions by the self-driving car company Waymo and drone-delivery business Wing.

“We’re supporting that work by investing sustainably and creating good businesses," the spokesman said in a statement. A Verily spokesman said Alphabet has shown support for the company and pledged to do so in the future.

Other tech giants, including Amazon.com and Facebook-owner Meta Platforms, also have cut back recently on projects lacking immediate commercial potential.

Page said when he established Alphabet that the new structure would bring more accountability to endeavors straying far from Google’s core business, including efforts as diverse as Calico, which is developing drugs for cancer patients, and the venture-capital firm GV.

Some of the cost-cutting efforts at the Other Bets have been under way since 2019, when Page stepped down as CEO of Alphabet and elevated Google CEO Sundar Pichai to the same position at the parent company.

More than a half-dozen Other Bets companies have either shut down or merged with Google, including the balloon internet effort Loon and real-estate-technology company Sidewalk Labs. Alphabet added an agricultural-services company called Mineral to the Other Bets earlier this year.

Losses at the Other Bets swelled to $6.1 billion last year. TCI Fund Investments, an activist hedge fund with a multibillion-dollar stake in Alphabet, publicly called on the company in November to reduce spending in Other Bets by at least half.

Ruth Porat, Alphabet’s chief financial officer, has kept a close watch over expenses at the Other Bets, often encouraging the companies to have more commercial discipline, said people familiar with the discussions.

Alphabet said last month that Porat would move into a new role as president and chief investment officer in September, overseeing the company’s stakes in the Other Bets among other responsibilities.

Several Alphabet companies including Waymo cut staff during companywide layoffs in January that affected about 6% of employees.

Waymo recently said it would also end commercial efforts in self-driving freight trucks and focus instead on passenger taxi services. The company cut its internal valuation earlier this yearand offered employee one-time stock grants to make up the difference, said people familiar with the change, which helped reduce expenses at the parent company in the second quarter.

In January, Alphabet moved AI lab DeepMind from the results of Other Bets to the parent company’s, before later merging its operations with Google’s Brain division. The change would have reduced losses in Other Bets by more than $1.4 billion last year, Alphabet disclosed in updated financial statements.

Alphabet reported $2 billion in operating losses from the Other Bets this year through June, a result that partially reflected the shuffle.

Stephen Gillett, CEO of Verily, has tried to bring focus to a sprawling portfolio of products and research projects since taking over the top executive role from founder Andy Conrad this year.

Verily, which brought in most of Alphabet’s revenue from Other Bets last year, initially drew attention for attempting to develop a glucose-monitoring contact lens. It discontinued the project in 2018.

The company had revenue of $280 million this year through June, excluding income from a partnership with glucose-monitoring-device manufacturer Dexcom, according to the presentation last week. Almost 80% of the revenue came from insurance sales, a business Verily entered three years ago.

In January, Verily laid off about 15% of employees and discontinued several products, citing efforts to streamline operations. Gillett has told employees he wants the company to become profitable next year.

While it faces pressure to cut costs, Verily has also begun spending tens of millions of dollars per year on efforts to separate operations from Google, which originally housed the business. Verily still pays Google for access to some software tools and technical infrastructure.

The efforts, known internally as “Flywheel," cost $49 million in the first six months of this year, according to the presentation. The company aims to complete the project by the beginning of 2025.

Separately, Verily recently entered a deal with Google to move the company’s headquarters to an office in San Bruno, Calif., that currently houses employees at the video service YouTube. The company will also begin leasing an adjacent building on the YouTube campus.

Executives told employees in April the changes will save the company at least $100 million over the course of a traditional 10-year lease.

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