Google Fiber Has ‘Good Shot’ at Profitability: Analysts

It’s “quite plausible” that Google Fiber’s deployment in the Kansas Cities will deliver an attractive internal rate of return (IRR) based on anticipated costs and expected demand for services, while also representing a scenario that could be replicated in other markets, Sanford C. Bernstein concluded in a report.

Google Fiber has “a good shot at being profitable” while also doing some damage to incumbent service providers over the long haul, noted report authors Carlos Kirjner and Ram Parameswaran. Bernstein foresees probability occurring in two different scenarios – one in which Google Fiber is able to crank out highly attractive IRRs of greater than 35%, as well as an “overly pessimistic” view that generates an IRR of just 12% -- still slightly above Google’s cost of capital. The level of success will be determined in part by how differentiated Google Fiber’s services are, if Google Fiber can sustain high service penetrations, and if it can scale economically without compromising service quality, the report said. Among other key factors: the penetration of homes passed when Google first starts to deploy the network, and the service penetrations achieved during the first five years.