Will stock, hiring surge at a more transparent Google?

Analysts split on whether restructuring will deliver needed insight on company plans


Google's restructuring could finally deliver to Wall Street something it's been after for years: more insight into what the company is spending on things like Nest, drones and health research.

If that happens, it could boost the company's flat stock and entice the best engineers and tech workers to bypass the likes of Netflix and Facebook to sign up with the new Alphabet.

"Overall, we view the new structure as an elegant way for Google to continue to pursue long-term, life-changing initiatives, while simultaneously increasing transparency and management focus in the core business," wrote Doug Anmuth, an analyst with J.P. Morgan, in a report released Monday. "From a financial perspective, we believe the Street will soon be better able to evaluate the true performance of core Google, and may also become more accepting of Google's ongoing investment in emerging businesses such as Nest, Fiber, and driverless cars."

Late on Monday, Google announced that it is creating Alphabet Inc., a parent company that will oversee a slimmed down Google, as well as business offshoots like Nest, Life Sciences -- which includes research on a glucose-sensing contact lens -- and a startup funding operation called Capital and Ventures.

The move doesn't appear to signal any changes to some of the company's other offerings like Google search, Android or Gmail. Instead, the shift is all about the business structure.

Google co-founder Larry Page noted in a Monday blog post that with the new structure execs plan to implement segment reporting for their Q4 financial results. Google financials will be provided separately from those for the rest of Alphabet businesses.

Depending on how transparent Alphabet's segment reporting turns out to be, investors could finally get answers to the questions they've been asking.

Will the new financials show how much the company has been investing in Nest, robotics,driverless cars, its Fiber network and drones? How much is being spent? How much is coming in?

"I see Google providing a lot more visibility with this move," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "By structuring the business like this, they have to provide more information. They cannot hide it.... All those businesses will need to provide more information on what they are doing and what they have done."

While Alphabet is expected to segment out its financials by its fourth-quarter earnings report, Jan Dawson, chief analyst with Jackdaw Research, noted that the company also will need to release historical financials based on the new structure so investors can put future financial information in context.

Dawson is skeptical about how financially transparent Alphabet actually will be.

Historically, Google has released financials on three areas: the Google website, the network of third-party sites where ads are shown, and then a bucket that includes things like hardware, the Google App Store, Nest and everything else Google does.

Some analysts expect that by the fourth quarter, they'll see financials for Alphabet as a whole and each separate business, including Google, under that Alphabet umbrella.

Dawson doubts that.

"I think there will be a two-way split between core Google and the rest," he said. "There won't be a lot more transparency. You'll be no closer to knowing how profitable Nest is or how much Project Loon is costing. A lot will be buried under those general headings. They'll carry on being pretty opaque."

While Google hasn't given Wall Street the kind of transparency big investors want, the company's numbers have remained strong. Just last month, Google reported second-quarter financials showing that the company had overall revenues of $17.7 billion and revenue growth of 11% year over year.

Wall Street investors, though, have long wanted to know how Google is spending its money, which research projects are sucking up the most investment and which show real potential for return. That level of detail could relieve Wall Street and excite investors enough to raise the company's stock, which has been relatively flat for the last year or so.

The company's stock popped late yesterday after the restructuring was unveiled. It was up 6.5% after hours and, as of 3 p.m. ET today, it was up 4.03%.

A stronger stock price could help the company.

For instance, the hiring market has been especially tough in Silicon Valley with companies like Facebook and Netflix pulling out the stops to grab top-tier engineers and tech workers. Netflix, in fact, just began offering parents unlimited paid leave for a year as one of its perks.

With Google's stock flat, recruiters - as well as managers trying to retail the best workers -- haven't been able to dangle healthy stock options as an employment carrot.

"The stock has jumped, so it's not out of the question that the stock will rise," said Dawson. "But we're putting the cart before the horse. We need a lot more detail. We won't know what they'll be reporting until we get to that first report later this year.... There's just tons of questions we don't know the answers to right now."

This story, "Will stock, hiring surge at a more transparent Google?" was originally published by Computerworld.