Alphabet Sells Robotics Unit Boston Dynamics to Softbank

Alphabet Inc. GOOGL is selling its robotics subsidiary, Boston Dynamics to Japanese telecommunications and technology company, SoftBank.

Rumors regarding the sale have been doing the rounds since last year. At that time, Bloomberg had reported that potential buyers included Amazon AMZN and Toyota Research Institute, a division of Japanese automaker, Toyota Motor Corporation TM.

As part of the deal, SoftBank will also buy Schaft, another Alphabet subsidiary and humanoid robotics company. SoftBank however didn't reveal the deal amount.

Fails to Fit into Alphabet's Strategy

Alphabet has been exploring opportunities in various areas other than the core Google segment.  In the last reported quarter, Other Bets segment revenues, which the company broke out in the March quarter of 2016, comprising mostly of its non-core segments, grew a massive 47.9% year over year. The segment includes Fiber, Verily, Calico, Nest and X Labs (an incubation center for new products).

Alphabet Inc. Revenue TTM

Alphabet Inc. Revenue TTM | Alphabet Inc. Quote

The company has had an impressive run on the bourses over the last one year. The stock has gained an impressive 35.3% compared with Zacks Internet - Services industry's gain of 24.3%. Though presently at a pre-revenue stage, we believe the Other Bets segment will drive back its growth going forward.

Though Boston Dynamics had made considerable progress with its humanoid and animal-like mobile robots, Alphabet never included it in X labs. It is selling the company reportedly citing the absence of marketable products.

Google acquired Boston Dynamics in late 2013 as part of its robotics division known as Replicant. The latter makes humanoid and animal-like mobile robots customized for military purposes.

The primary architect of Replicant was Android founder Andy Rubin under whose leadership eight robotics-related companies were bought by Google in 2013. Under Ruben, the division was preparing for its first consumer product launch in 2020 but the process was obstructed with Ruben's departure in 2014.

Additional issues cropped up when the Boston Dynamics team started facing problems working with Google robotic engineers in Tokyo and California while developing a new range of products including the "low-cost quadruped robot".

With all these, Google executives became skeptical about the revenue-generating capacity of Boston Dynamics. They also feared that humanoids could take human jobs.

In December, after its reorganization to Alphabet, Google announced the decision to fold Replicant into Google X hardware lab. Boston Dynamics was not made a part of this fold and instead put up for sale.

Softbank to Boost its own Robotic Push

We believe that the latest buyout is a part of SoftBank's gambit to strengthen its foothold in the robotics space. The company has been testing waters with robots with creations like the humanoid assistant, Pepper.

SoftBank stated in its press release, "The transaction aligns with SoftBank's investments in paradigm-shifting technologies and its vision of catalyzing the next wave of smart robotics."

To Conclude

While Alphabet never hesitated investing in areas that show real promise, it took some of the boldest decisions to curb down unprofitable businesses such as its decelerating fiber broadband service and drones. It also sold its imaging satellite business, just like it's selling two of its robotic subsidiaries.

Such divestitures lead to significant cash from operations and a huge cash balance with which management has the flexibility to further pursue growth in potential areas and markets.

Zacks Rank & Key Pick

Alphabet is a Zacks Rank #2 (Buy) stock. Another stock in the same space worth considering is TiVo TIVO sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rate forTiVo is 10%.

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