Google Overhaul 'Shareholder Friendly', Though Details Scarce

Google Inc's overhaul of its operating structure is an acknowledgement of the lack of transparency surrounding its disparate businesses and projects, analysts said, but it remains to be seen how much more the company will actually disclose.

Analysts and investors have long sought more granular detail on Google's capital spending and cash flow, as well the financial performance of YouTube and the Android operating system.

Google said on Monday it would split into two reporting companies under a new holding company called Alphabet.

One will hold its core search and Web advertising business, and the other its newer ventures such as driverless cars and Internet-connected thermostats made by its Nest business.

Google shares were up 5.7 percent at $701 (roughly Rs. 45,000) in premarket trading as investors looked forward to a new era of transparency.

"This supports our view that GOOGL has entered a new era of shareholder friendliness," said MKM Partners analyst Rob Sanderson, who rates the stock "buy."

Still, Google did not say what details would be disclosed.

"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," said Goldman Sachs analyst Heather Bellini, who has a "neutral" rating on the stock.

J.P. Morgan analysts said fuller disclosure could make the market more accepting of Google's heavy non-core investments.

Some analysts also expect the split to mark the start of a more aggressive approach to expense management.

At least 14 brokerages reiterated their top ratings on the stock while Mizuho Securities raised its rating to "buy" from "neutral" and Stifel Nicolaus to "buy" from "hold".

Several analysts likened Google's decision to break into two reporting entities to Amazon.com Inc's move to start reporting revenue from its cloud-computing unit.

Amazon's shares have risen by about a third since the company first broke out results for the cloud business in its first-quarter results in April.

"Similar to Amazon's share price moves in anticipation of and subsequent to the separate disclosure of its AWS segment, we believe this change sets up Google shares well as investors will now have more clarity around the core Google business' profitability and growth of some of its longer-term investments," Stifel analyst Scott Devitt said.

Of 50 analysts covering Google, 43 have a "buy" or higher rating on the stock and seven rate it "hold." The median price target is $750 (roughly Rs. 48,000).

© Thomson Reuters 2015