Alphabet Gooses Google Stock, Pleases Investors Seeking Transparency

Google was trading near record highs Tuesday, less than 24 hours after the company’s formation of a new parent company was cheered by Wall Street analysts.

Shares shot up approximately 4% by the afternoon after riding as high as 6.2% earlier in the day. Google stock peaked last month following an earnings report that pushed shares as high as $674.

The bump was attributed to the unanticipated announcement of Alphabet, a new corporate structure that would separate much of Google’s legacy businesses from newer ventures deemed “far afield” from the company’s core strengths in search, mobile and video.

Analysts were quite pleased with the restructuring because they anticipate it would provide greater visibility to the company’s financials. Google critics have long lamented the difficulty in understanding the company because of the undisclosed expenses that come with funding so-called moonshot ventures.

“We see the increased transparency from the creation of Alphabet Inc. as a positive step to better understanding both core Google profitability and the company’s loss-generating investment projects (Google X, Fiber, Calico, Google Ventures, etc.),” analysts at Morgan Stanley wrote in a research note issued Tuesday.

However, many analysts were also cautious about concluding that all their questions would be answered by the new structure.

“Investors have long asked for more granularity in Google’s reporting and have long questioned where Google is investing its money,” Jefferies analysts noted. “The new breakout won’t provide all the answers, but this is surely a step in the right direction.”

Cowen & Co. sounded a similar sentiment. “It remains to be seen how deep the reporting, at minimum Core and Non-Core, or potentially approaching the point where the specific segments can be valued in their own right (e.g. Search, YouTube, etc.) and not be dragged down by the margin profile of, say, Fiber or X-Labs.”

Credit Suisse echoed Cowen’s impulse to get greater understanding of YouTube and another content-minded division at the company, Google Play.

“Whether this will result in incremental disclosure for Google’s larger businesses like YouTube or Play remains to be seen, but this event will at the very least help investors better assess the revenue growth trajectory as well as the capital intensity of the company’s more mature versus emerging businesses.”

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