A List Why Changes Are Necessary
The founders of Google (NASDAQ:GOOGL) just announced an enormous restructuring plan that will make the new Google a massive conglomerate similar to how NYSE:GE’s conglomerate is constructed. Google is planning on creating independent companies, each of which could become a publicly traded firm in the future. This is a radical but necessary complete restructuring of how Google currently is organized. Instead of numerous divisions all controlled by Google as the parent company, a new parent corporation called “Alphabet” is being created.
Unlike the novel corporate identity name of Google which is a mathematical term, Alphabet lacks the quirkiness and individuality of the original corporate name. This reveals the aging of the company even more than the announcement of a new corporate structure.
Here is a list why changes for the new Google are necessary:
1. Each division becomes a separate company providing an invigorating environment similar to a new startup firm, allowing each smaller firm to make decisions faster than would be possible within a mega corporation which tends to move and make decisions like a sloth.
2. Each can go after its own funding or tap into the funding resources provided by the 2 new entities under the new Alphabet umbrella of Google companies.
3. New research and development can advance at a faster pace, and be more inventive and creative with less corporate oversight from the old Google which can create a leap advancement for these new companies.
4. Streamlining the divisions into separate entities allows for more hands on management within each new firm, providing opportunities for structural changes sooner for the new Google.
5. Google stock has already been divided into two stock offerings. Dividing the firm into separate entities will provide huge financial incentives for the individual companies, their officers and owners, as well as give Google a means of being able to increase stock values in a way that is impossible under the current structure.
This news of the new Google is being received as a positive for the NASDAQ:GOOG and GOOGL stocks. See stock charts for both below.
GOOG has a percentage of Institutional Ownership of about 73%, while GOOGL has an Institutional Ownership of only 36%. A recent huge gap up on both stocks occurred on Earnings News, which was excellent in a weak Earnings Season for most giant companies.
For investors, the restructuring may stall the stock price for awhile, even though Google has plenty of capital reserve to do this massive overhaul of its internal structure.
The NEW Google also lowers the risk for Google and Investors should one or more of these companies struggle to be profitable. Google can quickly and easily distance itself from a troubled company it owns, that is separate from the corporate entity.
The restructuring is very similar to GE and its umbrella of independent companies that cover wide and diverse industry types. GE has new technology companies, including GE Capital and GE Venture investments. Google appears to be tailoring its new corporate umbrella structure in much the same way.
For those who have watched Google’s spectacular rise to dominance starting in 1998 to now, it remains one of the most ambitious and astounding growth companies. Google’s Dutch Auction IPO in 2004 allowed many Independent Investors the chance to buy Google with the giant Institutions, which was unheard of then and continues to be the rare rather than the norm for IPOs.
The hope for Investors is as the NEW Google companies move toward their own IPOs that Google Board Members might remember the 2004 spectacular IPO, and consider doing a similar type of IPO where the Independent Investor has the same level of buying ability as preferred clients such as the giant Institutions.
Some of these new firms are likely to have lengthy Research and Development phases, and some may not survive but a few are likely to be the next growth IPOs.
Google as a publicly traded company is only 11 years old, and as a firm it is not yet 20 years old. Yet it has done more in terms of growth and stock investment quality, than most major Dow 30 components excluding of course NASDAQ:AAPL.
The question that remains is why the Wall Street Journal continues to fail to put Google on the Dow 30, as the most influential company of the past 11 years for internet services.
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