CH-CH-CH-CHANGES

Wall Street is really excited by Google’s restructuring—but it isn’t exactly sure why

Wall Street is clearly excited by news of Google’s massive overhaul.

The company’s stock shot up 6% in after-hours trading Monday (Aug. 10) after it announced a radical restructuring that would place Google and its other properties under a new parent company called Alphabet Inc.

Investors are hopeful this move will mark a new era of transparency at Google, which has kept a tight lid on the financials of YouTube, Android, and other properties. But they’re not exactly sure what to expect.

Analysts at Macquarie Securities said this new structure will give investors “a much better understanding of key metrics driving core Google,” likening it to Amazon’s recent decision to provide a more detailed breakdown of its earnings, particularly its cloud-computing business.

In a research note, Brian Wieser, an analyst at Pivotal Research Group, wrote that the restructuring will provide “incremental transparency into Google’s business” but was cautious over what will actually be made available to investors.

It may be overly optimistic at this point to hope for discrete business unit break-outs for [Google’s advertising network] (with perhaps $10bn of gross revenue this year?), YouTube (with perhaps $5bn of revenue this year?), other Doubleclick related activities, Google Play, Android, etc, etc. Further, it remains to be seen whether or not key cashflow items such as capital expenditures—which are not commonly broken out by companies with multiple reporting segments, but which are particularly critical for Google—will be disclosed at the segment level.

And while Larry Page, current Google CEO and soon-to-be chief at Alphabet, said the reorganization would improve “the transparency and oversight of what we’re doing,” the only change to financial reporting he’s hinted at seems to suggest an obscuring of its non-Google businesses.

Starting with the fourth quarter, Page said Alphabet will break out Google’s financials but report the remaining subsidiaries in aggregate. (This was how Amazon kept revenue for its cloud computing business under wraps for years, and how Apple is currently concealing Apple Watch sales.)

“Separating them out into one combined segment probably won’t provide all the transparency investors need to value them,” Wieser added.

Right now, it remains murky what additional information investors will get—they’ll have to wait until early next year when Alphabet reports earnings for the first time.

Investors may be putting faith in Google’s new chief financial officer, Ruth Porat. Shares surged last month after the company’s earnings trumped estimates and Porat, who will serve as chief financial officer at both Google and Alphabet, offered reassuring words on cost controls and capital allocation. Perhaps she’ll bring that investor-friendly approach to financial reporting.

But so far, Google is being opaque about how it’ll be more transparent.

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