How should traders respond to the restructuring of Google?
Google (GOOG) has announced that Alphabet will be the new holding company and Google will be a component of the bigger company. This has broad implications for traders. Will the shift of focus lead to new trading opportunities?
Google now falls under holding company Alphabet
The new Chief Executive Officer of Google, Sundar Pinchal, is in an envious position following a restructuring announcement by the company on Monday 10 August. As is so often the case with company restructuring (Hewlett-Packard is a case in point), it takes place to enable certain core components to operate independently yet synergistically as part of a greater holding company.
The rebranding of Google marks an important structural change because it means that Google is no longer front and centre of all operations – it is now part and parcel of a much larger holding company known as Alphabet. As such, Google will be a subsidiary of Alphabet. Many other companies will comprise Alphabet including numerous project concepts and experimental concepts.
The other projects that are now under the Alphabet holding company include Google X, Capital and Venture Programs, Fiber, Nest and Calico. As for Google, the following components will fall under its banner: YouTube, Search, Chrome, Maps, Apps, Ads and Android.
What does this all mean for traders?
For one thing, it means that there is plenty of additional investment potential available within Alphabet. Previously, the founders of Google (Paige and Brin) focused all their energy on Google alone. But now that there is a new CEO at Google, Paige and Brin can focus their creative efforts elsewhere.
Google is currently trading at $660.90 per share on the Nasdaq (end of 19.8.15). While no underlying difference in the valuation of the stock is likely to occur, the complete restructuring of the company allows for enhanced growth opportunities. The move to establish Alphabet is an effort to allow the founders to focus on other business aspects while leaving the successful Google brand in the competent hands of its CEO. The focal point of Google is no longer on exploratory concepts, but rather on its successful business operations. All of the companies operating under the Alphabet banner will have autonomy to produce their own brands, under the synergistic umbrella of the holding company.
As far as day-to-day operations of Google software, Android and other related products, everything remains as is. There are no plans in the pipeline for any changes to the services offered by Google or the products it provides. However if you were able to cash in on this early, you would have seen a 7% increase in Google stock, spiking to over $700 in the after-hours trading session.
Will we see an increase in overall profitability?
The most important component of the restructuring plan is that there will be greater transparency for individual business units. Alphabet business units will now be subject to checks and balances and the profitability of each of these units will be measurable for internal purposes and investment reasons alike.
Individual business units will be able to form companies if they become successful and this will lead to additional trading opportunities. It’s all being done in an effort to keep expenses under control, and this will ultimately result in a higher share price for the company, all things being equal.
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