question-confused

Google announced yesterday that it would become a wholly owned subsidiary of a new company called Alphabet Inc.

Read: Google to trade as Alphabet, installs new CEO

And while the company’s stock was up about 6% in after-hours trading, what does this news mean for investors?

It can be positive for a client’s holdings, notes Steve Barban, principal, senior financial advisor at Gentry Capital, Manulife Securities Inc. Google is part of his 40-stock model portfolio.

“While I generally don’t like publicly traded holding companies because their shares tend to underperform the operating entities, I do see how this move makes sense for Google,” says Barban. “Tax-wise, they can offset the heavy R&D costs of the other companies against the strong earnings of the Google companies since they will now be under one company.”

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Barban says the new structure may also allow for talent sharing within the greater entity. And, “it also allows them to hide any poor performance from the other divisions within the big profit numbers of the search engine and YouTube.”

Mark Lin, portfolio manager at CIBC Asset Management, adds the biggest benefit for investors and shareholders is the company may become less of a mystery. “Google is a very secretive company and doesn’t disclose a whole lot” about its operations and earnings. “Investors have been pushing the management of Google for years to get more detail [because] we don’t get much more than some of the key performance indicators related to search.”

Consider that YouTube is one of the most successful, user-driven content platforms available, he notes, and we don’t really have anything on YouTube’s performance metrics. So Lin says, “It’s a great thing [for Google] to come out with a more defined structure that will allow investors and analysts to understand the company better.”

Read: Opportunities in the tech space

Still, investors will have to wait until Q4 to see how much information the company provides, notes Lin.

Company expansion?

Barban predicts that if one of the lesser-known companies under what’s now the Alphabet umbrella “hits it big, they can spin off the division into a separate publicly traded company, thereby unlocking its value.” He cites how Pfizer spun off Zoetis in 2013 as an example.

And Lin wouldn’t be surprised if Google and Alphabet launch new businesses, given “they’re constantly trying new things and often [dedicate] capital to building new businesses,” such as a wealth management arm, driverless cars, and research and development company Calico.

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This may happen because the senior management of Google will now be able to focus on innovation, Lin adds. “Larry Page is an ambitious man who has big visions for the future, and he’s not afraid to try. As Google becomes bigger and more complex, and as it invests in other areas, it will really needed people to lead each and every venture under the bigger umbrella. So this is a good move that will allow the company to put the right people in the right places.”

Read: Outlook optimistic for tech sector

Originally published on Advisor.ca

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