What Everyone Is Saying About Google's Alphabet Stunner
Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) on Monday said that it was creating a holding company, Alphabet, to house the core Google brand as well as a plethora of its other brands. Analysts have generally reacted favorably on the move, pointing out that the new structure will give investors more clarity into how the core business is performing.
The stock is also reacting favorably, gaining 5 percent on Tuesday morning.
The move caused Stifel analyst Scott Devitt to upgrade the stock and institute an $850 price target. Devitt compared the move to Warren Buffett, calling Google the "Berkshire Hathaway of the Internet." Devitt also said that Google's willingness to break out its core business could spur the stock higher, much in the same way that Amazon.com, Inc. (NASDAQ: AMZN)'s disclosure of Amazon Web Services revenue helped that stock.
Other analysts were not swayed. Both Brian Wieser at Pivotal Research and Brian Nowak at Morgan Stanley said that the move did not change their Hold and Equal-Weight ratings on the stock. Wieser said that "it may very well be that little will change" in Google's management. Further, Pivotal is skeptical of the actual transparency that will result from the structural changes, noting that some of Google's value "is probably diminished by a conglomerate discount that should be appropriately applied." Pivotal has a $620 price target on the stock.
Nowak said that this shift allows focus to be placed on Google's profitability as well as the size of any non-core investment losses. Without that insight at present, Nowak left his prior analysis in place.
Analysts were positive on Google's choice to have Sundar Pichai succeed Larry Page as the CEO of Google. Evercore ISI's Ken Sena called Pichai a "natural choice to lead the Google core business."
UBS' Eric Sheridan (Buy, $750 price target) pointed out that additional "upside could be driven by improving pricing trends, increased margin stability/leverage and the flexibility of a cash-rich balance sheet." The firm's core thesis is that Google will see continued advertising momentum and margin stability.
RBC Capital Markets' Mark Mahaney (Outperform, $750 price target) went so far as to call Google "the best portfolio play on the biggest Internet trends." In the firm's view, "Google's share price still doesn't reflect this."
One of the highest price targets on the street comes from Axiom's Victor Anthony, who has a Buy and $850 price target on the company. That price target reflects a 13.5x multiple to 2017 EBITDA. He also speculated that the restructuring might have an impact on Twitter Inc (NYSE: TWTR), which may find a new CEO in Omid Kordestani. Kordestani was previously Google's Chief Business Officer, but will now be an advisor to Alphabet and Google.
Google has increased more than 20 percent this year. The company is set to open near its all-time high of $678.64, hit in July.
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