If Wall Street was getting worried about Google’s spendthrift ways, then the share price jump that followed its magical reinvention on Monday as Alphabet, the tech investment holding company, was a strange way to show it.
This overhaul formalised what chief executive Larry Pagehas been saying for some time: that Google has its main sights squarely set on giant tech growth markets, such as driverless cars, drones and biotech. Reorganising Google into a conglomerate — with search and other internet businesses just one operating arm among many — is a structure for the long term.
If investors were in any doubt before, then this was a clear message that the cash pouring out of the company’s internet businesses is really there to support the most ambitious agenda in the tech world, as Mr Page looks to build the defining conglomerate of the 21st century.
That might sound like a recipe for an even more aggressive investment strategy — just the thing that stock market investors have grown wary of as Google has poured its excess cash into its grand new schemes. However, after a period of underperformance stretching back to early last year, Google’s shares rose more than 5 per cent in after-market trading on the news.
Nevertheless, there was a distinct glass half full aspect to Wall Street’s enthusiasm. Google’s metamorphosis into Alphabet is seen as a sign that Mr Page and co-founder Sergey Brinare finally ready to tackle some of the issues that have been concerning their investors — even though, on the face of it, the changes might risk having the opposite effect. For a company that has famously shunned Wall Street in the past, that could make this a turning point in its financial history.
One concern has involved a lack of disclosure about the performance of Google’s different businesses. Without that, Wall Street has lacked a real understanding of how its core internet operations are performing as it makes the switch to the smartphone-centric world, or of how much money is being poured into big new schemes including driverless cars, delivery drones and “smart” home thermostats.
On Monday Google said it would start to show results for its core business separately from the fourth quarter this year. But that does not go as far as Wall Street has wanted. It will still be impossible, for instance, to see how YouTube is doing, or how much Google makes from display advertising.
Still, even Monday’s minimal gesture towards better disclosure drew an enthusiastic response from investors.
“It’s a really, really important step to get the company to where they break out the businesses,” said Youssef Squali, an analyst at Cantor Fitzgerald.
Cantor Fitzgerald公司分析师尤塞夫?斯夸里(Youssef Squali)说：“这是朝着推动该公司分别披露各项业务业绩的方向上迈出的非常、非常重要的一步。”
If, as some analysts believe, the operating profit margin in Google’s core business is more than 60 per cent — compared with the figure of about 40 per cent that it currently reports, after the effect of spending on newer businesses — it would go a long way to shoring up confidence.
A second pressure from Wall Street has been for the company to do far more to explain its investments. With capital spending soaring, and costs weighing on its overall margins, doubts have hung over its financial discipline. The appointment this year of chief financial officer Ruth Porat, who had held the same title at Morgan Stanley, had already raised hopes of a more rigorous approach.
来自华尔街的第二项压力，是要求谷歌下更大努力解释其投资项目。随着资本支出猛增，随着成本拖累整体利润率，各方对谷歌财务纪律的疑虑挥之不去。今年，摩根士丹利(Morgan Stanley)前首席财务官(CFO)露丝?波拉特(Ruth Porat)被任命为谷歌首席财务官，令外界期待谷歌在财务上将更加严谨。
There were no specifics in Monday’s news to indicate how — or even if — Alphabet’s capital allocation policies would differ from those of the old Google.
Even so, the very act of separating the different operations into a holding company structure will eventually force Google to make the case separately for each business, analysts argued. This should encourage a “laser focus” on the financial performance of the newer businesses and eventually force each to stand on its own feet, Mr Squali said.
Some on Wall Street read even more into the shake-up. Separating Google’s businesses under a holding company is the kind of thing that can lead eventually to breaking the company up, said David Garrity, an analyst at GVA Research.
有些华尔街人士甚至从此次重组中看出了更深的含义。GVA Research分析师大卫?加里蒂(David Garrity)表示，把谷歌的不同业务分开、置于一个控股公司之下，这样的操作最终可能导致公司被拆分。
“People see this and they immediately think: ‘spin-off’,” he said. While any move would be far in the future, Mr Garrity suggested Monday’s share price rise showed that Wall Street believed this was a first step — since break-ups often follow when companies “slice and dice things so they appear to be worth more than they are”.
This message did not meet with universal approval in the tech world. Google’s refusal to adopt the normal conventions of public companies may have frustrated Wall Street, but it has been seen as a sign of its steadfast focus on the long term. As a result, any indication that it might be adapting to financial fashion grated.
George Colony, chief executive of tech research firm Forrester, summed up that reaction in a tweet: “Google chose the investment banker solution to maintain momentum. The risks? Conflict, customer confusion, ecosystem degradation.”
According to the Google chief executive, however, a looser corporate structure will make it easier for Google to achieve its ambitions.
Speaking in an interview with the Financial Times late last year, Mr Page made the case that the company’s many “moonshot” projects are standalone businesses, not parts of an integrated whole. He has argued that Google’s many new businesses should not be seen as part of a single grand plan to collect data and sell more advertising to the same group of customers.
At the least, this is a message that may help Google fight swelling concerns over its growing business power and threat to personal privacy.
However, as Alphabet emerges into view, as if from a chrysalis, and the sheer scale of Google’s ambitions become apparent, there is also a risk that it will end up having exactly the opposite effect.