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Can Google’s New Structure Take Stock Back to All-Time High?

Shares of Google Inc. (NASDAQ: GOOGL) jumped when its founders announced it would be part of a new parent company called Alphabet. In theory the restructuring will allow Google’s dozens of operations to get more attention from the new parent’s management. Wall Street likes the move because it will, in theory, give investors a better look into the financial performance of Google’s businesses.

However, the decision may not be enough to move the stock much higher. That will depend on the company’s slowing revenue, and whether Google can milk that revenue for more profits. Google trades moderately below its all-time high, at $634 against its top of $678. Rearranging the chairs will not end that.

Alphabet’s structure should, according to founders Larry Page and Sergey Brin, concentrate more on Google’s bright future, if that future is the expansion of businesses that are mostly experiments. Among the few exceptions to this is Google’s cloud business, which competes with Microsoft Corp. (NASDAQ: MSFT) and Amazon.com Inc. (NASDAQ: AMZN). Google’s market share in this arena, and perhaps its profits, will demonstrate that Google can create a multi-billion-dollar business that has almost nothing to do with its search business.

The unluckiest executive in the new structure is Google CEO Sundar Pichai. He gets the largest piece of the company, by far, but one that is not growing at historic rates. In the most recently reported quarter, Google’s revenue, which is primarily from the search engine, grew 11% to $17.7 billion. The growth rate probably was helped by faster growing YouTube. The new structure of Alphabet will show if that is true. The numbers were affected by the Google’s sale of Motorola to Lenovo.

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As Wall Street picks apart the new Alphabet figures, it still will look primarily at the search division. Aside from decelerating revenue growth, the issue of rapid employee additions will be part of the calculation. Investors have been wary of Google’s habit of adding thousands of employees a year without saying what these people will do.

Google continues to trade below its all-time high, but there is a chance it will close that gap with the Alphabet restructuring. A new set of divisions, broken out more visibly, will not mitigate the slowing growth of its main business though.

By Douglas A. McIntyre