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Alphabet Inc. Restructuring Decision

Manisha Thapa

Westcliff University

BUS 525 Strategic Management in a Globalized Economy

Mrs. Ajanta Das Dutta

December 16, 2020

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Google Event in 2015

Google, a multinational company that is well known for internet -based inventions

such as web-based search engine, Cloud computing, software applications, mobile operating,

hardware products and enterprise solutions. It was established in 1998 by Larry Page and

Sergey Brin when they were PhD Students at Stanford University. Besides the internet -based

inventions google also have hosting services such as mapping, emails, social networking

space, payment gateway services, and many more. The innovation, new technologies are the

major factors that has positioned google strongly in the global market. Google is considered

to be one of the big five companies in US. The company’s rapid growth after the company

triggered a chain of products, acquisition, and partnership beyond googles core search engine.

Google revealed its intention to reorganize the various interests in August 2015 as a

conglomerate called Alphabet Inc. Google is the leading subsidiary of Alphabet. It

distinguishes the non-core business of Google Inc. from the core business of Google, such as

internet operations such as YouTube, Google search engine, and Android, such as life science

research, investment division, internet access, and self-driving vehicles. Companies were then

reorganized into two parts, i.e. Google and other bets (other 10 firms). Under the current

system, the number of companies like Google developed and operated separately as

Alphabet's subsidiaries. The aim of Google restructuring was to show its investors a clearer

understanding of the profit and loss of the business by splitting the most profitable project of

the company into separate organizations, i.e. google fiber (Bettie, 2020, May 19).
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Impact of Reorganization in Stock price

The reorganization decision by Google made Alphabet Inc. a separate entity while the

parent company split the company into two i.e. Google and other bets. The industry analyst

claims that Google's reorganization decision was due to stagnate share price and to try

appease investors. In addition, their intention to restructure Google under the new holding

company was to preserve Google's core brand and boost the operating efficiency of

independent companies. Likewise, also to provide proper supervision as well as assist in

bringing financial transparency of the company. Few of the analyst also states that

restructuring has helped google to be more competitive as the restructuring shows the clear

picture of stock price to the investors. Likewise, transparency in stock price would help the

investors to make the investment decisions. Whereas Alphabet Inc. became more disciplined

financially after the reorganization. Non-core firms, however, suffered due to the increasing

pressure to control expenses from revenue generate (Bettie, 2020, May 19).

The increasing stock price of google is listed in Nasdaq as GOOGL and GOOG for

trading. When the restructuring was announced, common stock is increased by 6 % while

more than $28 billion market value is created. After the restructuring Google, Alphabet

became the publicly traded corporations and all the share of google is transferred to Alphabet.

The below table shows the stock price

Year Stock Price

2019 1337.02
2018 1135.61
2017 1046.40
2016 771.82
2015 758.88
2014 524.96
2013 558.26
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2012 352.37
2011 321.74
2010 295.88
Source: https://finance.yahoo.com/quote/GOOG/history?

Table 1: The historical Data of GOOG

From the above table, it can be observed that the share price of the company is

increasing from 2015 as a result of restructuring. Before 2014 the stock price of the company

is increasing but at the decreasing rate. This is may be because the investors were worried

about the return as company was too complicated and risky. Because company was involved

in various projects. Whereas investors were also concerned about the google stock price and a

result share price of the company remain stagnant. Hence, the reorganization was a result of

stagnate share price and also to appease the investors. The restructuring of the company

brings transparency in operation and improve the operational efficiency contributing in

greater profitability. Thus, reorganization was the action taken due to stagnant share price.

Google’s stock price in current market is almost $ 1800 that means the growth of the

company in terms of market valuation.

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Effect of Google’s Decision to Restructure

By splitting Google and other bets in 2015, Alphabet Inc. agreed to restructure the

company. Bet faced financial strain after the restructuring as it was plagued with losses of

millions and billions of dollars per year. The Google strategy to reorganize the business

worsened and 'other bets' have to face a loss of $1.1 billion in the fourth quarter of 2016 and

$3.6 billion in the fiscal year of 2016 as a result. However, the move for google helped it

while the same decision for other bets went worse. Thus, the reorganizing decisions brought

about the company's financial crisis for other bets (Reddy, 2020).

The restructuring decision of the company helps the organization be to be

competitive, stronger and profitable. Google is diversified venture and generate revenue from

core business such as Google Search Engine and Online Advertisement. After the

restructuring the google, it was able to fully focused on its core business and strengthen its

financial positions. In fact, the market capitalization of the company increased to 200 million

dollar which is almost double of the company value. During the fourth quarter of 2015, the

earnings from the google was $ 21.3 billion that 18% year by year. Similarly, the revenue

raises to 74.5 billion dollars at the end of fiscal year and net profit was 23.4 billion dollars.

Likewise, other bets on the other side also realize the revenue of $448 million. After the

statement release in first quarter of 2016, the Alphabets became the most valuable company

in the world with the share price up by 8%. In fact, Alphabet Inc. became the strong

competitor of apple corporations. Through the online advertisement business, Alphabet was

exceling the business flourishing its sales. The market value of company went to $531 billion.

Likewise, during the 2015, Alphabet has the growth rate of 20% (Bradlow, 2015).

Similarly, the restructuring has impact on financial statement as earlier all the income

and expenses of all the business operation were shown in same statement because of which

investors were not able to analyze the profitability. However, after restructuring the financial
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statement is transparent and this has helped the investors to make decisions. Likewise,

company has became more competitive and transparent whereas the company market

valuation is also gradually increased (Moghadasi, 2019).

Expansion of Google Inc.

Google’s decision to restructure itself under a new holding company named Alphabet

was to protect the core brand while giving the independence for its riskier investments and to

brought the transparency in those investment. As the subsidiary of Alphabet Inc. Google will

retain the internet products including the SEO, YouTube and Android. The restructuring

decision of Google was a smart move because the expanding the business in various area will

result the profitability. The restructuring and expansion of business brought many

uncertainties and challenges to non-core whereas separation of core business from non-core

business helps to reduce the obstacles business has to encounter when working together (Hitt,

Ireland & Hoskisson, 2019).

Further, the decision helps each business to independently operate its function without

the interference. As the segmentation of Google and bets separate them in terms of liability,

profit and accountability. For instance, Google is now fully focused into its core business

like SEO, YouTube and Android while it doesn’t have any burden of non-core business.

Similarly, the company have the sole authority to make the decision without any interference.
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The economic ground of profitability

Yes, the decision of google to restructure was a good move because diversifying the

business over many areas helps business to diversify risk as earlier all the business operations

were related to each other. So, any impact on any area might affect overall operation. As

single loss of the company will affect all the business if risk was not distributed to several

sectors. However, separating the core business and non-core business has helped the business

to fully focused on those specific area that has scope of more revenue generations. Also, the

business operations are more independent than earlier as decision can be made without an

interference. Similarly, restructuring of the company has made company more competitive

and stronger (Kennedy, 2019, October 25).

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Conclusion

This restructuring intension of google was the response to stagnant share price and

investors unease. Through restructuring, Google could focus on its core business so financial

position will strengthen in the market. Further, it would encourage Google to set off and

become a massive corporation of technology (Lowitt, 2015). Similarly, restructuring will

allow each subsidiary company would operate in a separate industry under the Alphabet

holding company and produces various products. The restructuring decision of the google is a

smart move as google has diversified the risk through dividing core and non-core business. It

will also allow Google to be able to disclose sales growth from its many subsidiaries. To have

more financial transparency, the Alphabet holding company will split out Google's financial

reports. Thus, the restructuring decision of google has helped the company to improve the

competitiveness in the market bringing the transparency in financial statement.

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Reference

Bettie, A. (2020, May 19). The Story Behind Google's Success. Retrieved from Investopedia:

https://www.investopedia.com/articles/personal-finance/042415/story-behind-googles-

success.asp

Bradlow, E. (2015). What’s Behind Google’s Alphabet Restructuring? Retrieved from:

https://knowledge.wharton.upenn.edu/article/googles-alphabet-reorg-can-the-whole-live-

up-to-one-of-its-parts/

Hitt, M. A., Ireland , R. D., & Hoskisson, R. E. (2019). Strategic Management Competitiveness

and Globalization. Boston.

Kennedy, J. (2019, October 25). Buffett's Moat: Google's Competitive Advantage. Retrieved from

Investopedia: https://www.investopedia.com/articles/insights/051316/buffetts-moat-how-

sustainable-googles-competitive-advantage-googl.asp

Lowitt, E. (2015, August 18). The Volatility Behind Google’s Alphabet. Retrieved from:

https://magazine.wharton.upenn.edu/digital/volatility-behind-google-alphabet/

Reddy, T. (2020, July 25). What Are the Secrets Behind Google’s Success Story? Retrieved

from: https://www.systutorials.com/what-are-the-secrets-behind-googles-success-story/

Moghadasi, M. (2019). Corporate strategy analysis: A case study of Alphabet Inc.