Photographer: David Paul Morris/Bloomberg

The Top Questions Facing Alphabet, the New Google Conglomerate

The search giant announced some big changes, but there are plenty of questions left to answer

As Google Inc. reorganizes into Alphabet Inc., the conglomerate has promised a new era of transparency. Now, investors and analysts are working on wish lists of the kind of information they want to see from the Web company.

Chief Executive Officer Larry Page said there will be a clearer distinction between Google's main Web operations and long-term projects, when he announced the changes this week. That helped fuel a 4.1 percent rise in Google’s stock price on Tuesday.

Ruth Porat, who will be chief financial officer of both Alphabet and Google, will help oversee the adoption of the new structure, which will be introduced in phases in the coming months. More details will be disclosed when Alphabet gives results as a holding company, starting with fourth-quarter earnings, which are usually released in January.

Here are some of the main issues that people will be looking at:

Detail on emerging businesses

While Alphabet will report Google's performance and non-core operations separately, the key question is the level of detail that will be given on the newer businesses. Wall Street wants to learn as much as it can about the financial status of projects such as driverless cars, health technology and Internet access, including sales, profitability, margins, capital expenditure and other metrics.

A bigger wish, though less likely, would be for the conglomerate to break out the financial performance of smaller businesses that it includes in the "other" category, such as Nest, Google X, Fiber, venture investments and Calico. Given that many of the businesses are still in early stages, there may not be a lot of numbers to show.

"The real insight here is you’re going to be splitting off these moonshot investments," said David Yoffie, professor at Harvard Business School. "We're not going to get a lot of new information and new insight from this reorganization. Many of the others are non-revenue generating."

Data on the main business

One benefit of separating Google's search business is that investors will be better able to value the unit based solely on its financial performance. While Google has provided information on the average cost and the number of clicks on advertisements, there's room for more details to help gauge the performance of Alphabet's main business.

"Historically, Google has notoriously been a black box," said James Cakmak, an analyst at Monness Crespi Hardt & Co. "Larry Page and company consistently marched to the beat of their own drum."

There's also the prospect of more disclosure around operations that are close to the main search business, including YouTube, mobile search and display advertising, which aren’t broken out by Google.

Moonshot spending

Page and fellow co-founder Sergey Brin have repeatedly said that Google needs to make "moonshot investments" to create businesses that will fuel future growth. At the same time, Google's existing search and mobile businesses need investments to remain competitive.

That could put spending on moonshot projects under closer scrutiny, even though Google has embraced a policy of devoting 10 percent of its resources to such endeavors.

"What does it mean for capital allocation policy?" said Ben Schachter, an analyst at Macquarie Securities. "What does this mean for that framework. Are Larry and Sergey going to be content with just 10 percent?"

Cash

Investors will want to know more about how Alphabet will spend its cash. The new holding company structure makes it easier to bring in new acquisitions, since the purchases can be added without bundling them together with the main Google business. That will also draw more attention to the Google executives’ willingness to buy other businesses. At the same time, the new structure makes it easier for the company to spin off existing companies.

The move also raises questions about what management might do in the way of buybacks or dividends at some point. Cash holdings stood at $69.8 billion at the end of the latest quarter.

Management

Investors will also be paying attention to how well Alphabet's new management structure works.

While Page will be CEO of Alphabet, with Brin as president, Sundar Pichai, Page’s deputy, will be promoted to run Google as CEO. Other businesses will also have CEOs, including Tony Fadell at Nest. Omid Kordestani, a key executive, will transition from his role as chief business officer to become an adviser to Alphabet and Google.

The new structure could help the conglomerate be managed more effectively, according to Ryan Jacob, who manages Google shares as part of his Jacob Internet Fund.

"There will be more clarity," Jacob said. "I think they are definitely headed in the right direction."

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