Here's What Wall Street Is Saying About the Big Changes at Google

Looks as if analysts like it

Is Google's Alphabet Move All About Retaining Talent?

After the market closed on Monday, Google announced that it is reorganizing into a holding company called Alphabet. What people know as "Google" will be one company within the broader organization, and other projects will now be separated under the Alphabet umbrella.

In a blog post, the company said this will improve transparency and help it get "more ambitious things done." Wall Street cheered the news, with shares rising after hours. Many analysts covering the stock sent out updated research to clients. Here are some of the key comments:

Cowen and Co.'s John Blackledge: (Outperform rating, raised price target to $840, from $775)

This is a significant move as it 1) Aligns mgmt. more closely to business lines; 2) Increases transparency into Core Google (Search, YouTube, etc) and Non-Core (Fiber, etc.), highlighting higher Core profits. This move is unambiguously constructive to our GOOG thesis, Target Price to $840 from $775.

Susquehanna International Group's Shyam Patil: (Initiated coverage with a positive rating, price target $800)

We believe Google may have turned the corner after its most recent quarter. Several growth drivers are becoming clearer (mobile search, Ad Tech, YouTube, Play) and the new CFO appears to be striking a more disciplined tone around expense management and seems open to a more shareholder-friendly capital allocation approach.

William Blair's Ralph Schackart: (Outperform rating)

In our view, the purpose of this reorganization is to provide more transparency to shareholders. Under its new structure, Google will breakout the revenue and costs associated with running its core businesses—providing investors a clear picture of “core Google” profitability. We applaud Google’s decision to increase transparency, a key investor concern.

Cantor Fitzgerald's Youssef Squali: (Buy rating, price target $720)

Google unveiled plans to create a new public holding company, Alphabet Inc., with Google Inc. (core search, ads, maps, apps, YouTube and Android) carved out as a wholly owned subsidiary. The stated goal here is to increase management's scale aspirations, and focus across its consolidated businesses. We view this move as a key step towards bringing much needed financial transparency to core Google in terms of growth, margin profile and capital intensity vs. its other ventures, and thus see it very positively for the stock short- and longer term. While the timing of this announcement is earlier than we thought, it fits well with the overall direction management/board have undertaken with the appointment of Ruth Porat as new CFO.

Deutsche Bank's Ross Sandler: (Buy rating, price target raised to $840, from $780) 

Google has been our top pick in 2015 owing to: 1) its discounted valuation vs. peers, 2) prevailing negative sentiment, 3) our belief that innovation is alive and well, and that Google management cares about its stock price, and 4) these management change periods are historically very good signals toward unlocking shareholder value. These latter two factors are becoming clearer with two significant events playing out this year: A) operating margin turning from imploding to now up Y/Y, and B) the newly announced push toward cleaner financial disclosure and new operating structure...In summary, the GOOG story is just starting to hit its stride, there is significant upside from current levels and we want to be there for the whole ride.

Goldman Sachs's Heather Bellini: (Neutral rating, price target $660) 

While details around how Google will report are still unclear ... we believe this new operating structure shows their desire to increase transparency which we’ve highlighted as a key issue for Google to address. Should Google move to “segment reporting” as referenced in its filing, we would expect to get revenues and expenses for the core and non-core businesses, which should help bring clarity to any profitability drag caused by its non-core assets and their trajectory. While it is not clear if Google will break out YouTube and mobile search, we see this move as a positive nonetheless in being able to ascertain the core’s profit levels and further highlight its incremental margin. In our view, the executive appointments do not seem to indicate drastic changes. 

Morgan Stanley's Brian Nowak: (Equal-weight rating)

We see the increased transparency from the creation of Alphabet Inc. as a positive step to better understanding both core Google profitability and the company's loss generating investment projects (Google X, Fiber, Calico, Google Ventures, etc.). As we wrote in Google: The Pathway to $650, we have seen improved and more detailed disclosure lead to multiple expansion with other internet companies (up to 13-18% company-wide multiple expansion at Expedia and Amazon) and would expect a similar outcome for Google. Looking ahead, the key factor to understand will be how profitable the core Google business is and the size of the "investment losses."

Pivotal Research Group's Brian Wieser: (Hold rating, price target $620)

Google is effectively changing its name to Alphabet and announcing that it will introduce a distinct reporting segment for many of its emerging ventures beginning with the fourth quarter. On balance, incremental transparency into Google’s business is positive, although we remain uncertain as to exactly how much transparency will be provided, and therefore remain cautious on the degree to which this news should be viewed favorably.

Pacific Crest's Evan Wilson: (Overweight rating, price target $745)

We continue to think an era of more disclosure and cost consciousness, driven by its new CFO (who will be CFO of Alphabet and Google), is positive for GOOGL. We'd continue to be buyers.

Stifel's Scott W. Devitt: (Upgrade to buy, increased price target to $850) 

Larry Page and Sergey Brin meet Warren Buffett and Charlie Munger as the Berkshire Hathaway of the Internet emerges for a multi-year stock run, in our view. Today, Google announced plans to create a new public holding company, Alphabet Inc., which will provide reporting for the core Google business as well as its smaller, more speculative segments separately. The company has recently been giving investors exactly what they've wanted, with the strong management team exercising disciplined focus on value creation, and with multiple business units operating with reasonable levels of autonomy. We believe this combination leaves the possibility for shares to exceed the S&P 500 return for many years on the back of this new operating structure. We are upgrading to Buy with a $850 target price and will have more details as it's available.

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