Google investors welcomed the promise of more openness about the profitability of its core business, after the technology group said it would in future report separately results from its experimental ventures, such as self-driving cars.
Google shares defied a wider stock market sell-off on Tuesday, closing 4.1 per cent higher at $690.30 and pushing the company’s market value to $444bn.
Investors said the restructuring into a holding company called Alphabet, under which the current Google business will be just one division, would allow them to see more clearly how that core business — which includes search advertising, Android phones and YouTube — is performing.
Deborah Koch, co-manager of Northern Technology Fund, said the changes could improve investors’ understanding of Google’s strategy and potential.
“It is clear the company has been as frustrated with the stock price as have investors, because this is the currency in which it pays employees. It needs to improve the narrative; Facebook is stealing its thunder on advertising, Amazon is stealing its thunder on the cloud. Listen to its earnings calls and there is just not enough information being given.”
Ms Koch said that both Amazon and Expedia had enjoyed a re-rating after splitting out the results of their newer businesses.
More important could be whether the changes help Google improve budgetary discipline, she said, and sharpen capital allocation decisions regarding its ambitious new business such as self-driving cars and healthcare.
Josh Spencer, who manages the $2bn T Rowe Price Global Technology fund, which has 10 per cent of its assets in Google shares, said he continued to hope for more transparency.
“I count myself among those who would like more disclosure, even among the core businesses, but this is a good first step and I am loath to criticise given how well they have executed over the years. This is the bargain you make with founder-owned companies. Google goes in and out of favour as people’s confidence in Larry Page and the team waxes and wanes, but those periods when it is out of favour have been an opportunity to buy the stock.”
Mr Spencer said that splitting out the investment-heavy future businesses would expose how profitable the core Google operations were. “That should lead to a higher valuation.”
(Published by Financial Times – August 11, 2015)