Google announced a major re-organisation on Monday that will see the creation of a new parent company called Alphabet.
Larry Page will lead Alphabet, while former Chrome and Android head Sundar Pichai will become the CEO of Google, now a subsidiary of the bigger company Alphabet. Sergey Brin will serve as Alphabet’s president.
Here’s a round-up of what the analysts have had to say about the huge announcement so far. Most of the analysts seem to agree that the move will provide more transparency around Google’s financial reporting, as well as more managerial focus on its separate operations. However, the true impact of the re-org probably won’t be clear until Google/Alphabet next reports its earnings.
Rating: BUY (up from HOLD)
Price Target: $US850
Comment: 'The company has recently been giving investors exactly what they have wanted, with the strong management team exercising disciplined focus on value creation, and with multiple business units operating with reasonable levels of autonomy. We believe this combination leaves the possibility for shares to exceed the S&P 500 return for many years on the back of this new operating structure.'
Target Price: $US840
Comment: 'It's hard for internet shareholders not to analogize this to AMZN and EXPE's recent moves, which drove the multiple up ~35% and 14% respectively. In summary, the GOOG story is just starting to hit its stride, there is significant upside from current levels and we want to be there for the whole ride. Buy.'
Target Price: $US750
Comment: 'Overall, we think that this new corporate structure is a positive for GOOG investors, as we'll get more transparency and a better understanding of various key drivers. One near-term concern is that this new structure looks likely to also lead to more resources going toward non-core initiatives (though we think this is a positive for the long term). Additionally, it is too early to understand the potential regulatory and legal impact, but we suspect that it could be meaningful. We also think it is interesting that Larry is acknowledging that they have been managing businesses 'independently that aren't very related.' The plan is that this new structure will allow for more focus and better incentives to drive the various core and non-core businesses. We look forward to seeing the improved financial visibility and the new structure's impact on the growth of both the core and non-core initiatives.'
Price Target: $US745
Comment: 'Google is changing its operating structure, which could lead to less day-to-day responsibility for Page, better executive retention, the potential for more spin-offs and acquisitions and, most importantly, more disclosure, for which investors are clamoring. We continue to think an era of more disclosure and cost consciousness, driven by its new CFO, is positive for GOOGL.'
Target Price: $US723
Comment: 'We believe there will be two important take-aways from this move. First, the new structure will demonstrate the true profitability of Google's core search and advertising business (including YouTube). Second, it will provide better focus across all of the company's business lines including Google's core advertising business, which will now be run by Sundar Pichai.'
Target Price: $US720
Comment: 'We view this move as a key step towards bringing much needed financial transparency to core Google in terms of growth, margin profile and capital intensity vs. its other ventures, and thus see it very positively for the stock short and longer term. While the timing of this announcement is earlier than we thought, it fits well with the overall direction management/board have undertaken with the appointment of Ruth Porat as new CFO.'
Price Target: N/A
Comment: 'Alphabet Inc. structure a good step toward improved disclosure as bull case plays out ... focus will turn to core Google profitability.'
Target Price: N/A
Comment: ' In our view, the purpose of this reorganization is to provide more transparency to shareholders. Under its new structure, Google will breakout the revenue and costs associated with running its core businesses -- providing investors a clear picture of 'core Google' profitability. We applaud Google's decision to increase transparency, a key investor concern.'
Target Price: $US660
Comment: 'While details around how Google will report are still unclear (will cash and capex be broken out, just revenues and expenses on the P&L...), we believe this new operating structure shows their desire to increase transparency which we've highlighted as a key issue for Google to address. Should Google move to 'segment reporting' as referenced in its filing, we would expect to get revenues and expenses for the core and non-core businesses, which should help bring clarity to any profitability drag caused by its non-core assets and their trajectory. While it is not clear if Google will break out YouTube and mobile search, we see this move as a positive nonetheless in being able to ascertain the core's profit levels and further highlight its incremental margin.'
Price target: $US620
Comment: 'On balance, incremental transparency into Google's business is positive, although we remain uncertain as to exactly how much transparency will be provided, and therefore remain cautious on the degree to which this news should be viewed favourably.'
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