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Google's Reorg a Good Thing for Investors

Transparency overhang should abate, but we're unlikely to materially change our fair value estimate, says Morningstar analyst Rick Summer.

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 Google (GOOG) (GOOGL) announced a plan to reorganize its management structure and lines of business, creating a new publicly traded entity called Alphabet. Google will become a wholly owned subsidiary (which contains core Google products such as Search, Android, Chrome, YouTube, and other applications such as Maps and Photos), led by newly named CEO Sundar Pichai. Previously, Pichai served as senior vice president, heading up Google-branded products for the Internet behemoth. The remaining assets of the newly formed Alphabet will include entities such as Nest, Fiber, Google X, life sciences initiatives, and corporate venture holdings. Larry Page and Sergey Brin will serve as CEO and president, respectively, of Alphabet, and will no longer serve in operating roles for the Google subsidiary. Ruth Porat will serve as CFO of both Alphabet and Google.

We believe the reorganization is generally positive for investors, as we believe the company's lack of transparency has created an overhang on the stock during the past year. Still, investors will own exactly the same assets after the reorganization, and we aren't likely to materially increase our $715 fair value estimate, though we reiterate our wide moat rating for the firm. The reorganization is planned for later this year.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.