How Alphabet Is Eyeing The Lucrative Healthcare Industry With Verily

  • The healthcare industry is set to grow significantly.
  • Alphabet's moonshot project, Verily, could be critical for growth.
  • Alphabet isn't holding back with its new venture, but it's still early days.

Not long back, Alphabet Inc-C (NASDAQ:GOOG) rebranded its Google Life Sciences as Verily. For those who are wondering why the move is of significance, here are some numbers that explain why Alphabet's Verily could become a growth driver. As human beings live longer, the healthcare industry is set to rise in importance and balloon in value from its multi-trillion Dollar worth in the U.S. alone.

Health Care Industry Statistics Annual Revenue
Health Care Industry Annual Revenue Total $1.668 Trillion
Number of health care companies in the US 784,626
Number of health care company employees in the US 16,792,074
Average health care company employee salary $39,400
Health Care Industry Sales Statistics Annual Revenue Percent of Industry
Health Care Industry Annual Revenue Total $1.668 Trillion 100 %
Patient Care $1.068 Trillion 64 %
Inpatient skilled nursing services and rehabilitation $74.8 Billion 4.49 %
Dental non-surgical intervention services $49.6 Billion 2.98 %
Contributions, gifts, & grants by the governmetn $44.9 Billion 2.69 %
Appropriations from general governement $40.2 Billion 2.42 %
Other $389 Billion 23.36 %

Source: Statistic brain

Research shows that the average life expectancy is set to hit 80 and this will lead to increased spending on medication and healthcare. As a result, healthcare spending is set to grow significantly from 17.5% of U.S. GDP in 2014, to hit 19% over the next 10 years.

Moreover, due to increasingly sedentary lifestyles, the obesity rate is on the rise. To put it into context, data from research shows that 2/3rd of Americans are overweight, with half of those classified as obese.

Once we look at the wider picture of the healthcare industry around the world, an interesting picture emerges. As society becomes insatiable in their quest for perfection, the lines between healthcare and cosmetics are beginning to blur. One can envision a future whereby booking an appointment to change a part of your body becomes as normal as visiting the dentist.

This is where Alphabet's Verily comes in. Alphabet has taken an important leap forward by getting involved in the lucrative healthcare industry with Verily - a project designed to use big data for the identification of diseases. It is hoped that this will allow for better, more evolved healthcare services.

It is a project which Google's CFO is calling a "moonshot". Some investors view such "big bets" as Google's attempt to diversify its interests in order to ensure stability. Let's not forget that Alphabet is a company which began as a search engine and took on giants such as Yahoo (NASDAQ:YHOO) to cement its place as one of the world's most valuable brands.

With the arguable stagnation of innovation in the consumer tech market, and Google's dominance in search and advertising, it makes sense that they would look for more avenues to conquer.

How Ground-Breaking Could Verily Become?

We use big data on a daily basis. One can see the benefits of big data for companies like Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX). These two companies use big data to deliver relevant information in response to sometimes complex search queries. Obviously, Google also uses big data extensively.

Interestingly, the company wants to use big data to have a bigger impact on our lives. And they want to do this by using wearable tech to monitor us on 24/7 basis. This allows for early diagnosis of life-threatening diseases and when this is combined with big data, the best treatments can be suggested, possibly at an early stage.

From a business perspective, this could allow Google to form lucrative partnerships with healthcare stakeholders such as insurance companies, hospitals, and pharmaceutical companies.

Alphabet made an investment in smart contact lens manufacturer, Novartis. This Zurich-based company uses their innovative smart contact lenses to measure blood glucose levels in diabetic patients. However, the technology can also be used to collect other biological data. Novartis is also developing highly precise robots for use in the healthcare industry.

Actions speak louder than words, and Alphabet has given investors an indication as to the seriousness with which they are approaching this "moonshot" project.

1) Alphabet is conducting a human health study in order to understand what 'perfect health' in a human being means. This is a huge research study which requires samples from people around the world, selected based on age and gender.

2) Alphabet has signed a mutually-beneficial agreement with healthcare-heavyweight, Johnson & Johnson (NYSE:JNJ). This involves co-creating surgical robots and selling them through a new venture named Verb Surgical.

3) Alphabet has filed for a number of health-related patents.

Stock performance

Alphabet had a great start to 2016 after surpassing Apple to take the title of world's most valuable company. However, this victory was short-lived. That said, Alphabet has outperformed the S&P 500 with regard to net income growth. In fact, Alphabet's net income shot up by 45.3% in Q4 2015 as compared to Q4 of 2014.

The Alphabet stock has suffered a drop of more than $80 partly due to the news that the head of Google search, Amit Singhal, is set to step down. Moreover, bearish sentiment from some analysts has weakened confidence in the company.

GOOG stock chart

Alphabet stock price chart by amigobulls.com

There is some sentiment of not knowing which direction the company is heading into, and this has led to some investors being fairly bearish on Alphabet.

Conclusion

In conclusion, Verily, if successful, is set to add significant revenue to Alphabet's top line. However, it isn't an investment which will bear fruit in the near future. Therefore, don't buy the Alphabet stock based on Verily alone. Growth drivers for the stock in the short term will be heavily linked to ad-revenues and Android's market share.

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