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Google Inc (GOOGL) Burns Cash, Lays More Fiber Down

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Google Inc. (NASDAQ:GOOGL) has it hands in many pies. Google Fiber is the hand with which it tries to make the world a more connected place. The firm has announced that it is bringing in three more cities – Irvine, CA, Louisville, KY, and San Diego, CA into the Fiber-dom as its explores how Google Fiber can deliver super-fast internet access. The three cities will join the other metro areas in which the firm has been providing an Internet highway.

google fiber logo

Jill Szuchmacher, Director, Google Fiber Expansion notes that a faster internet is key to making the U.S. economy competitive globally. He notes, “The White House has started new initiatives to encourage faster Internet, while local companies are relying on gigabit speeds to grow.” Fiber Internet is faster than regular Internet speeds at 1000Mbps compared to 10Mbps. Hence, it is not strange that “Americans are signing up for gigabit Internet at a growth rate of 480% each year.”

Google Fiber is not another shot at the moon

Google is involved in hundreds of projects – some are worth the while, others won’t live the see the light of day, and the market would out rightly reject some, such as the Google Glass. The firm’s recent change to become Alphabet is a step in the right direction as it organizes its business focus to stop burning cash on stupid projects. In fact, soon after it unveiled Alphabet, the firm revealed that it was spinning-off its Niantic Labs (Ingress) project.

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Google Fiber is one of the projects that received funding, saw the light of day, and is gaining traction in the market. Google Fiber now stands as a firm under Alphabet – with the autonomy to grow on its own strength. It is now four years since Fiber launched in Kansas City, it is currently in 12 cities and the firm wants to expand into 19 more cities.

Fiber is already igniting the digital boom in the U.S. Midwest as blazing-fast Internet access rebrands the Midwest into a digital hub. The firm notes that in Kansas City, Missouri, about 121 businesses have launched or relocated to the Google Fiber area because connectivity is the lifeblood of startups.

What does Fiber cost Google

Google Fiber is still in its startup stage and the fact that Alphabet had not been reporting how much it spends on its moonlight projects keeps the finances a mystery. However, it doesn’t take a rocket scientist to posit that Fiber costs Google (NASDAQ:GOOGL) more money than it makes.

Carlos Kirjner at Sanford Bernstein estimates that the first phase of Google Fiber in Kansas cost Google roughly $84 million. Rick Usher, assistant city manager for Kansas City, Missouri notes that Google’s investment in the project should be close to $1B now. Wall Street Journal opines that its costs Google more than $500 per home.

Wall Street analysts have decried Google (NASDAQ:GOOGL)‘ s habit of burning holes in its pockets with its moonlight projects. In fact, analysts have been vocal about the need for the firm to be stricter with costs. However, Fiber appears to be one of the projects with the best prospects at Alphabet, and the market is willing to give it the benefit of the doubt.

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Victor Alagbe

Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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