Analysts hail greater transparency of Google's Alphabet restructure

Google’s corporate restructuring under a new parent company called Alphabet, which will separate its core search and advertising business from its more experimental businesses, is a clear positive, according to analysts.

Read more: Google rebrands as Alphabet and appoints new CEO

Nomura said it will increase transparency, which in turn should lift shareholder value.

“Investors have long desired better visibility into the trends and profitability of Google’s core business outside of investments in more speculative projects like Google Fiber, Project X, and Calico. Under the new structure, opex investment in these more long-term investment initiatives will be excluded from Google’s reported results, providing investors a clearer picture of the core businesses underlying trends,” it said.

In addition, Nomura said the reshuffle reaffirms the view that new chief financial officer Ruth Porat may be a source of positive change.

The bank said that even though she is barely three months into her new role, investors should grow increasingly confident that Porat is developing an early shareholder-friendly track record which could result in further valuation multiple expansion.

Finally, Nomura, which rates the stock at ‘buy’ with an $800 price target, said the move could provide greater flexibility around tax strategies.

“We believe under a new holding company structure, Google could better position itself with respect to its tax efficiency and possibly employ novel cash repatriation strategies to the benefit of shareholders,” it said.

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Meanwhile, RBC Capital Markets, which rates the stock at ‘outperform’ with a $750 price target, also said that increased transparency was a positive step.

In addition, it said the new structure would likely boost efficiency from what will effectively be a more focused management team.

The bank added that the appointment of Sundar Pichai as chief executive officer of the Google unit is a logical and strong choice.

Google shares were up 5.6% at $669.60 in pre-market trade.

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