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 The move appeared to be an attempt by the search engine giant to
focus on its more creative and ambitious projects, while investors
cheered the potential for more financial disclosures of its
disparate business segments.
"It suggests that in all likelihood, Google is not going to slow the
pace of their experimental processes like self-driving cars," said
Michael Yoshikami, head of Destination Wealth Management, which has
$1.5 billion under management.
The surprise news sent shares of Google up as much as 7 percent to
$708 in after hours trading.
The new structure could also give Wall Street better insight into
Google's investment in moonshot projects like Google X, a secretive
lab that produced the unpopular Google Glass wearable device.
"They are aware that they've got this hodgepodge of companies," said
Roger Kay, an analyst at Endpoint Technologies Associates. "Maybe
it's better to sort them out a bit and make it clearer which ones
are bringing in the bacon and which ones are science projects and
which ones are long-term bets."
The Mountain View-based company co-founded by Larry Page and Sergey
Brin in 1998 has grown from an Internet search engine to a
far-reaching conglomerate that employs more than 40,000 people
worldwide.
Google's planned structure resembles the way companies like
Berkshire Hathaway <BRKa.N> and General Electric <GE.N> are
organized, with a central unit handling corporate-wide activities
such as finance and relatively independent business units focused on
specific areas.
Under the new corporate structure, the Google unit will encompass
the core search engine as well Google Maps and YouTube.
In addition to Google X, the company's new ventures such as Calico,
which focuses on longevity, and connected home products maker Nest
will be managed separately. Other units that are part of the new
structure include Fiber, for its high-speed Internet efforts,
venture capital arm Google Ventures, and Google Capital, which
invests in larger tech companies.
NEW STRUCTURE
Alphabet Inc 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 of Google, said in a blogpost. (http://googleblog.blogspot.in/)
Page will become CEO of Alphabet
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.
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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.
"For example, if a unit is doing well or badly they can dial it up
or down, they can form partnerships or different companies," said
Kay of Endpoint Technologies.
Some other analysts were cautious, saying the new holding company
would need to provide more details on cash flow of the experimental
business segments.
"Breaking up into two different segments - well, it's not a terrible
thing. It's better than not doing it but on the other hand, you're
going to have a ton of businesses buried inside of a legacy Google,"
said Brian Wieser, an analyst for Pivotal Research Group.
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.
With Page heading up Alphabet, Sundar Pichai, a long-time Google
executive who most recently served as the company's senior vice
president of products, will head Google. Pichai, a well-liked
executive who oversaw Google's Android and Chrome units, is
respected in Silicon Valley for attracting top engineers.
Google co-founder Brin will become president of Alphabet, and Eric
Schmidt, chairman of Google, will be executive chairman. The
company's current directors will become directors of Alphabet.
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.
(Additional reporting by Noel Randewich, Malathi Nayak in New York
and Devika Krishna Kumar in Bangalore; Editing by Bernard Orr and
Leslie Adler)
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