Google (GOOG) (GOOGL) Alphabet Split Increases Transparency, RBC Capital's Mahaney Says

RBC Capital analyst Mark Mahaney reiterated an Outperform rating and $750 price target on Google (NASDAQ: GOOG) (NASDAQ: GOOGL) following the creation of Alphabet, which will split the company into companies: Google (core ad, Android & Chrome businesses) and Alphabet (non-core and capital funding) by the end of the year under the Alphabet umbrella.

"We view this as a positive step in terms of increasing transparency (especially with regard to core Search/Advertising), boosting efficiency, and putting a strong leader (Pichai) in charge of the core business," Mahaney said.

"We have contended that the Market has wanted four things from Google: 1) Consistent Revenue Growth; 2) Margin Stabilization; 3) Greater Disclosure & 4) Cash Back. This transaction will likely provide #3, with greater transparency on the core Search business," he added. "This transaction will likely provide #3, with greater transparency on the core Search business. We have long assumed that Google’s Core Advertising segment is very highly profitable – perhaps well north of 60% EBITDA margins. The new disclosure should confirm this. We believe the improved segment disclosure should be positive for shares just like the segment disclosure was a positive for AMZN, EXPE, and NFLX (at different times). Additionally, the re-organization will likely lead to some efficiencies from a more focused management team. Finally, we believe Mr. Pichai is a logical, and strong, choice to lead the core Google platform. We believe the stock has appropriately traded up in the aftermarket on this news."

For an analyst ratings summary and ratings history on Google click here. For more ratings news on Google click here.

Shares of Google closed at $633.73 yesterday.

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