Newspaper article St Louis Post-Dispatch (MO)

NIcklaus: Google's New Parent Company Sheds More Light for Investors

Newspaper article St Louis Post-Dispatch (MO)

NIcklaus: Google's New Parent Company Sheds More Light for Investors

Article excerpt

Larry Page of Google is one of the world's most admired CEOs, but his own shareholders have been a little suspicious of what he's doing with their money.

By setting up a new holding company called Alphabet, Page is seeking to allay those suspicions while retaining a free hand to invest in whatever he finds promising, from self-driving cars to life-extending biotechnology. Investors immediately applauded the new structure, sending Google shares up 4 percent after its announcement on Tuesday.

That increased Google's market capitalization by $18 billion, a big reward for simply drawing new lines on an organization chart. To many observers, Alphabet's appeal is all about visibility.

"You will get a more clear measure for the performance of the search business," said David Larcker, a professor of accounting at Stanford University. "If you have all this stuff without breaking it out, it's hard for shareholders to understand what you have and what you don't."

The holding-company structure that Google is adopting has long been out of favor on Wall Street. Apart from a few successful examples such as Warren Buffett's Berkshire Hathaway, conglomerate- style firms are usually criticized for lack of focus. General Electric, once a messy combination of industrial, financial and media businesses, has slimmed down to its manufacturing core.

Other technology companies have managed to innovate and diversify without adding corporate layers. Think of how Apple went from computers to phones to payment services, or how Amazon built its cloud-computing business.

Google has always been different, though. Founders Page and Sergey Brin keep tight control by owning shares with super-sized voting rights. They love to invest in moonshot businesses such as Google Glass, the computer that looks like eyewear, and Calico, which is doing research on aging, but they never say how much cash goes into those businesses. …

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