--> GOOG +6% near post earnings July highs premarket near $670; GOOGL near $700
Google: Color on Reorganization
- RBC notes Google announced that it is splitting into two companies: core Google and Alphabet. Google will include most things Internet, with core Search, Display, YouTube, Maps, Android, Chrome, Google Play, and Google Enterprise. Sundar Pichai, longtime Googler and currently the SVP of Products, will be CEO, and Ruth Porat will be CFO (also serving as the CFO of Alphabet). Alphabet will be comprised of the ‘non-core' and ‘moonshot' businesses, such as Nest, Fiber and Calico, as well as funding arms Google Ventures and Google Capital. This company will be run by Larry Page (CEO) and Sergey Brin (President). In summary, the split is a way to better focus management and provide a more nimble structure; Outperform.
- FBR Captial notes Google announced plans to rename and reorganize its business. In their view, this represents an important step toward improved transparency and accountability, supportive of a higher valuation. Better transparency may also be interpreted as a sign that. Google is attempting to strike a better balance between its founders' interests and investors' interests. Google offers an attractive GARP media investment with an unassailable moat in search and very attractive exposure to each of the key structural growth areas of the Internet-namely, search, online video, mobile, and the app economy; Outperform.
- Mizuho upgraded to Buy from Neutral, tgt $715. Three of their biggest concerns around Google have been 1) lack of transparency for investors; 2) an organization structure that is too large (55,000 employees) and not very nimble; and 3) the European Commission anti-trust lawsuit. With the new Alphabet Inc. holding co re-org, they believe that this is a major catalyst for the stock, and addresses their first two concerns for the company.
- Axiom notes that while there is no operating change, the new structure, in their view, will shed light on the operating leverage in Google's core business, which has been weighed down by the moonshots and other investments, and provide transparency into these investments. The change will also provide more clarity for investors to value the stock either through an SOTP or through multiples that better reflect the growth and margin profile of the core business.
- Pivotal Research notes Google is effectively changing its name to Alphabet and announcing that it will introduce a distinct reporting segment for many of its emerging ventures beginning with the fourth quarter. On balance, incremental transparency into Google's business is positive, although they 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 favorably; Buy.
- Stifel upgrades GOOGL to Buy from Hold and sets target price at $850 noting Larry Page and Sergey Brin meet Warren Buffett and Charlie Munger as the Berkshire Hathaway (BRK.B) of the Internet emerges for a multi-year stock run, in firm's view. Today, co announced plans to create a new public holding company, Alphabet Inc., which will provide reporting for the core Google business as well as its smaller, more speculative segments separately. Co has recently been giving investors exactly what they've wanted, with the strong mgmt team exercising disciplined focus on value creation, and with multiple business units operating with reasonable levels of autonomy. Firm believes 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