Google splits moonshot biz from its core search offering

Holding firm Alphabet structured to handle sprawl of diverse forays

Google splits moonshot biz from its core search offering

 Google is listening to Wall Street, while also trying to keep its innovation going. The Silicon Valley behemoth is reorganising under a new name — Alphabet — and separating its moneymaking businesses from the moonshot ones.

Under the new structure, current CEO Larry Page is to run Alphabet along with Sergey Brin, who co-founded the Web search business with him in 1998. Alphabet would be the parent entity, housing several companies, with the biggest among them Google. In addition, the portfolio would include Nest, the smart thermostat maker, and Calico, a company focused on longevity, among other things. Sundar Pichai, who had been senior vice president in charge of products, will be chief executive of Google, which will encompass Internet such products as search, maps, YouTube and applications like Gmail.

Google's move is the most significant step by a Silicon Valley giant to get a handle on the sprawl of businesses that it has entered, an issue that increasingly afflicts other technology companies like Facebook and Amazon. While all of these tech companies began as entities focused on one main business, online bookselling or a social network, for example, many have diversified over the years into numerous side businesses.

Alphabet will replace Google as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all the same rights.

“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google,” Page, the current CEO, said in a blogpost.
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.

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.

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.

Scarce details on rejig

Google’s overhaul of its operating structure is an acknowledgement of the lack of transparency surrounding its disparate businesses and projects, analysts said, but it remains to be seen how much more the company will actually disclose.

Analysts and investors have long sought more granular detail on Google’s capital spending and cash flow, as well as the financial performance of YouTube and Android.

“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 bring clarity to any profitability drag caused by its non-core assets,” said Goldman’s Heather Bellini.

J.P. Morgan analysts said fuller disclosure could make the market accept more of Google’s heavy non-core investments.

UNDER THE ALPHABET HOOD

Holding Company: Alphabet

Nest (smart thermostat maker)
Calico (company focused on longevity)
Google X (tech advancements)
Fibre (high-speed internet)
Google Ventures (venture capital)
Google Capital (investments)
Google
Search Engine l Google Maps l YouTube l Gmail


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