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Is Google now an alpha bet?

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Is Google now an alpha bet?.

Larry Williams:
Google recently announced a name change and a small reshuffle in key management positions and the share price rises 10%. How does that work?

Roger Garrett:
Google like to be seen as an innovative company and this move added about 25 billion to their market value. Essentially, Google's founders — Larry Page and Sergey Brin have renamed their company Alphabet which is split into the very profitable core business of their internet search engine Google and the rest that includes all of their visionary, and what some would call wacky, ideas.

Larry Williams:
Why did they call the new company Alphabet?

Roger Garrett:
It's not a name that has an immediate wow factor but in their press release they allude to their innovative aspirations by stating they chose the name Alphabet because language is one of humanity's most important innovations. But it is also a slight play on words because investing in Google stock is an alpha bet — two words meaning Google will outperform the market.

Larry Williams:
So why did the share price rise so much on the announcement?

Roger Garrett:
We've been invested in Google for a while now largely due to its market dominance, incredible profitability and strong growth prospects. One of our frustrations is the lack of detail they give not only in their core businesses (they don't disclose the contribution from YouTube for example) but also the success and profitability of their more visionary ideas which they categorise under the moonshot project label.

This change will give more clarity on how profitable their various business units are and give more focus and accountability for those particular units given they stand or fall on their own merits. Hopefully, this will allay some fears that good money being made in their core internet search business isn't being frittered away in some of their more risky ventures.

Larry Williams:
What sort of ventures are we talking about here?

Roger Garrett
Big ones; not issues that affect not millions but billions of people with a generational timeline. Larry Page is a visionary and essentially he wants to be a key part of completely reinventing industries. His better known projects are in the area of healthcare and robots.

In healthcare, they are looking at ways of expanding human lifespan and making a difference to health is a key goal. They have hired some big hitters from the biotech industry to help them do this.

In robotics, driverless cars are probably their most well known venture. Their driverless cars have driven over two million miles without an accident that is the result of robot error. They haven't found a car manufacturer to take up their technology but they have pushed ahead testing prototypes.

Larry Williams:
What about some of their more outrageous ambitions?

Roger Garrett:
Larry Page has always said their company is unconventional but there are some strange ones where normal rules don't apply, for example mining asteroids.

There is also Project loon that was trialled in New Zealand and puts a fleet of balloons into the stratosphere allowing internet access to be beamed to remote areas. This venture is pretty close to reality and Sri Lanka has actually committed in principle to this. And we know not all their projects will work — Google glass was a high profile failure because of a huge backlash over privacy.

Larry Williams:
So overall this is a good move by the Google founders?

Roger Garrett:
Yes, I believe so. They have recently appointed a new CFO who will act as CFO for both Google and Alphabet. She has bought a much needed financial discipline to the company both in terms of controlling costs and capital spending. As investors get a clearer idea of the profitability of the individual businesses that should allow them to better determine whether they are spending the considerable cash flow wisely.

 

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