Google's new spending binge shows Alphabet Inc running after biggest rivals

The company also spent at historic levels, nearly tripling capital expenditure for the quarter to $7.7 billion

Alphabet Inc.’s first-quarter results came with a clear message to Wall Street: The company is embarking on a new spending binge to chase its biggest rivals.

Google’s parent posted the strongest sales growth in almost four years on Monday, indicating marketers kept flocking to its services amid rising scrutiny of digital ads. But the company also spent at historic levels, nearly tripling capital expenditure for the quarter to $7.7 billion.

Almost all of that spending went to buttress newer cloud and consumer-device businesses that lag behind leaders Online Shopping for Electronics, Apparel, Computers, Books, DVDs & more Inc. and Apple Inc. After neglecting these markets for years in favour of its main ad businesses and riskier moonshot bets, Alphabet is now splurging to catch up.

"The big story from the results was the significant rise in expenses," Brian Wieser, an analyst at Pivotal Research Group, wrote in a note to investors.

Other tech giants are spending prodigiously, too, as they hunt for new markets. In the fourth quarter, Amazon’s capex rose 50 percent and Facebook Inc.’s spending nearly doubled.

Alphabet’s rising first-quarter investments partly reflected a $2.4 billion real-estate deal. But even without that, capex more than doubled from a year earlier. Chief Financial Officer Ruth Porat cautioned investors to expect more of the same. "I wouldn’t suggest a one-off in terms of the investment we’re making," she said. "We’re really building out to support the growth that we’re seeing."

Porat ticked off the items that are opening her wallet: data centres; three new undersea cables; processors, networking equipment and other machinery to power Google’s sprawling artificial intelligence efforts.

Chief Executive Officer Sundar Pichai told investors that Google’s nascent hardware unit, which builds smartphones and speakers rivalling Amazon and Apple, is two to three years from "the scale that we want to see." The investment required for this includes custom chips designed in-house, an expensive skill that Apple has been developing for years. Click Here

Budget 2016: Enhanced capital spending likely

The coming Union Budget 2016-17 will likely come good on Finance Minister Arun Jaitley’s promise to continue the government’s public spending push, with capital expenditure (capex) for the next year expected to come close to Rs 3 lakh crore for the first time.

At a time when private sector balance sheets are stretched and banks burdened with non-performing assets, Jaitley had stated the Centre’s commitment to boost spending in infrastructure as an impetus for growth. For 2015-16, the finance minister had budgeted Rs 2.41 lakh crore in total capex (including loan disbursements), about Rs 49,053 crore, or 25.5 per cent, higher than the 2014-15 revised estimates of about Rs 1.92 lakh crore.

Read More News: Budget 2016             Union Budget 2016-17

Next year too, a similar push is expected as the India Budget 2016-17 budgeted capex could be around 20-25 per cent higher than this year. Compared to the budgeted figures available, that comes to around Rs 2.90-3.02 lakh crore.