Google to be part of new holding company Alphabet
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San Francisco: Google Inc. announced a surprise overhaul of its operating structure on Monday, creating a holding company called Alphabet to pool its many subsidiaries and separate the core web advertising business from newer ventures like driverless cars.
The move appeared to be an attempt by the search engine giant to focus on its more creative and ambitious projects, while investors cheered the potential for more financial disclosures of its disparate business segments.
“It suggests that in all likelihood, Google is not going to slow the pace of their experimental processes like self-driving cars,” said Michael Yoshikami, head of Destination Wealth Management, which has $1.5 billion under management.
The surprise news sent shares of Google up as much as 7% to $708 in after hours trading.
The new structure could also give Wall Street better insight into Google’s investment in moonshot projects like Google X, a secretive lab that produced the unpopular Google Glass wearable device.
“They are aware that they’ve got this hodgepodge of companies,” said Roger Kay, an analyst at Endpoint Technologies Associates. “Maybe it’s better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long-term bets.”
The Mountain View-based company co-founded by Larry Page and Sergey Brin in 1998 has grown from an Internet search engine to a far-reaching conglomerate that employs more than 40,000 people worldwide.
Google’s planned structure resembles the way companies like Berkshire Hathaway and General Electric are organized, with a central unit handling corporate-wide activities such as finance and relatively independent business units focused on specific areas.
Under the new corporate structure, the Google unit will encompass the core search engine as well Google Maps and YouTube.
In addition to Google X, the company’s new ventures such as Calico, which focuses on longevity, and connected home products maker Nest will be managed separately. Other units that are part of the new structure include Fibre, for its high-speed Internet efforts, venture capital arm Google Ventures, and Google Capital, which invests in larger tech companies.
“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google,” Page, the current CEO of Google, said in a blogpost. Page will become CEO of Alphabet
Analysts said the new structure could herald a new era of fiscal discipline and transparency in some of Google’s more experimental and opaque business units.
In a filing with the Securities and Exchange Commission, Google said the new arrangement will take effect later this year and that it will likely result in two reportable, financial segments.
“For example, if a unit is doing well or badly they can dial it up or down, they can form partnerships or different companies,” said Kay of Endpoint Technologies.
Some other analysts were cautious, saying the new holding company would need to provide more details on cash flow of the experimental business segments.
“Breaking up into two different segments—well, it’s not a terrible thing. It’s better than not doing it but on the other hand, you’re going to have a ton of businesses buried inside of a legacy Google,” said Brian Wieser, an analyst for Pivotal Research Group.
The shuffle also looked to have the markings of Ruth Porat, who joined Google as its chief financial officer in March from Morgan Stanley. In Google’s recent quarterly conference call, Porat, will serve as CFO of both Alphabet and Google, repeatedly emphasized keeping expenses under control.
With Page heading up Alphabet, Sundar Pichai, a long-time Google executive who most recently served as the company’s senior vice president of products, will head Google. Pichai, a well-liked executive who oversaw Google’s Android and Chrome units, is respected in Silicon Valley for attracting top engineers.
Google co-founder Brin will become president of Alphabet, and Eric Schmidt, chairman of Google, will be executive chairman. The company’s current directors will become directors of Alphabet.
Analysts said the move could be followed by more structural changes in the future.
“This may be step one of several steps,” said Morningstar analyst Rick Summer. Reuters