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Is this purely a function of sharding liability across a conglomerate of businesses? It seems like concentrating Google's ad revenue in a smaller, more efficien
by josh2600 11y ago
Is this purely a function of sharding liability across a conglomerate of businesses? It seems like concentrating Google's ad revenue in a smaller, more efficient business unit is a nod to Berkshire Hathaway's method of business.
I can't recall this sort of thing happening in my lifetime, so it will be really interesting to see how this plays out. I also wonder how this would be treated if Google didn't have the crazy corporate structure they have now (where public shares are essentially non-equity and non-voting).
http://economix.blogs.nytimes.com/2014/04/02/the-many-classes-of-google-stock/ http://economix.blogs.nytimes.com/2014/04/02/the-many-classe...
Edit: I am reasonably certain this is a tax and liability optimization strategy. It allows their more risky units to operate with separate liability from their cash cow.
Edit 2: I'm actually surprised the stock value hasn't tanked because most of the future potential of Google just got moved outside of the company. How much of Google's future value was based on X? I would say a non-trivial amount of the stock price is the anticipation of future profits, which are now no longer a part of the company the stock is intended to index.
Edit 3: Disregard Edit 2, I misread the release the second time through and assumed X was not part of the company :).
- lallysingh 11y agoRe: edit 2: the stock holds all the stuff it held yesterday, right? The stock is now for alphabet.
- josh2600 11y agoYep, I misread it the second time through, sorry!
- rbinv 11y agoGoogle stock is converted to Alphabet stock. X moves from Google to Alphabet. No change in future value here.
- return0 11y agoIsn't 96% of Google profits from search ads only? They 've done a million ventures since then, still remain ad-funded.
- josh2600 11y agoCurrent sources of value != future sources of value. The price of Google's stock is based on forward-looking prospects, not on current metrics.
- return0 11y agoi m pretty sure its based on expected profits, or it would have flopped given the performance of all these prospects.
- fredkbloggs 11y agoActually, the price of Google's stock is based on expectations of future demand for Google's stock. It has little or nothing to do with the expectations of profits or the ability of the shareholders to receive them. This is true of all listed companies, and the more liquid their shares, the more true it is.
- fredkbloggs 11y agoYes. Because the Google part isn't being spun out to the shareholders but remaining a part of the conglomerate, this does nothing for the shareholders. The sea change would be if new-Google were a separate listed company returning its earnings to its shareholders. Instead it's a separate private company returning its earnings to Larry and Sergei to blow on whatever BS they want... just like it was yesterday. About the only thing this changes is that ex-Google is now explicitly acknowledging to the public markets what everyone already knew: it's a conglomerate, only unlike other conglomerates, it has only a single viable business. Yawn.
- derf_ 11y agoI've seen a lot of comparisons to Berkshire. Not every large conglomerate is Berkshire. Berkshire is composed of pre-existing businesses that were themselves successful before being purchased. They are not experimental ventures that need to be subsidized. It is exactly the opposite: money is plowed into the strongest businesses. They each generate excess cash, and it is easier to reinvest that cash in some places than others. The conglomerate structure makes it possible to put the cash where it gets the best returns without having to pay taxes or transaction fees. Alphabet has none of these properties, except the ability to allocate capital tax-free, but they already had that as Google.
- zrail 11y agoBerkshire is pretty explicit about using the firehose of cash that their insurance businesses throw off, as well as the huge amounts of premium float they have, as capital for their other more profitable businesses.
- joshstaiger 11y agoSure, but Berkshire is also explicit about the fact that they only acquire pre-existing "remarkable" businesses. They may benefit from the firehose, but were already self-sufficient without it. That’s in stark contrast to the Google/Alphabet model, where there’s no way driverless cars could exist independent of the adwords firehose. It’s waaaay more speculative. On the order of VC investing. Rather than Berkshire’s value investing. It’ll be interesting to see how this plays out.
- lk145 11y agoWhat tax benefits this move might have is my question as well. It seems like if this were purely about internal organization they could have effectively reorganized Google in the same way without making Alphabet (although I'm not an executive so I could certainly be missing something here).