September 10th saw Google make the big announcement that they are changing their parent company name to Alphabet Inc. Considering that Google has become much more than a search engine over the last few years, it seems appropriate that the parent company should change it’s name to encompass all of their ventures.
At the same time, the change in identity has also brought in a new corporate structure. The two Google founders – Larry Page and Sergey Brin – will become Alphabet’s chief executive and president. What this will mean in terms of the overall performance of the company remains to be seen.
In the past, predicting how Google would perform on the market was quite difficult. This was mainly because of how secretive they could be about their general performance. For example, it is still unclear as to whether YouTube has been profitable for Google or if it is actually running at a loss. The change to Alphabet could lead to things becoming a little clearer.
For the moment at least, it looks like people who have put money into Google will be enjoying a few benefits. It’s though that YouTube could have created $5 billion of revenue last year and the search advertising aspect of the business is running at around 60% profit. In 2014, Google had $66 billion in overall revenue. That will mean a great deal to potential investors.
Of course there are always some risks. In the long run, Alphabet could run into a few problems. One of the first thing Alphabet will have to deal with is European regulators. They have been charged with placing their own companies higher in search engine results even when other companies have paid to have their company ranked higher. They will have until September 17th to respond to the charge, which could well have a damaging effect on their stock.
The other problem Alphabet will have is the Google advertisements. When companies were paying for advertisements on desktop computers, they were proving to be quite lucrative. On mobile devices however, they do not make even close to the same amount of money. Considering that 89% of the $66 billion revenue in 2014 came from this aspect of the business, there could be a little trouble in the future. Google will have to find a way to make their paid-advertisements business more suitable for mobile devices if they are to keep these levels of revenue in 2015.
For now at least, investors in Google will be very happy indeed. It is the future that could pose a few problems. Alphabet will probably face a lot of pressure to streamline even further than they already have, which could prove to be very difficult. If they want to continue the solid streams of revenue they have been enjoying, changing to Alphabet will have to be just the first step in their attempts to streamline.
