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With Sundar Pichai as CEO, Alphabet Investors Hope for Greater Transparency

The management shake-up won't mean much for now, but could portend positive changes in Alphabet's approach to disclosures according to analysts.
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With Sundar Pichai at the helm, Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report investors are optimistic that the company will pull back the curtain a bit on its financial position. 

Shares of Alphabet closed 1.9% higher on Wednesday after the announcement that Google co-founders Larry Page and Sergey Brin, who served as CEO and President of Alphabet respectively, are stepping back from management duties and handing the baton to Google CEO Pichai.

While the elevation of Pichai was a surprise, investors already know the executive well and largely anticipate business as usual at the $900 billion search giant. The management shuffle won't have a huge impact in the near term, analysts said on Wednesday, though it could portend positive changes at the tech conglomerate. 

Since becoming CEO of Google in 2015, Pichai “has been leading the bulk of the revenue-generating activities at Google, with nearly the entirety of Alphabet’s revenue coming from Google,” noted Mark Sami of SPR, a digital consultancy. Meanwhile, Page mostly faded into the background despite his role as chief executive of Alphabet, reportedly spending most of his time on its “Other Bets” moonshot projects such as its autonomous car unit, Waymo. 

The exit of Page and Brin, who founded Google in 1998, seems largely symbolic as the company soon enters its 22nd year. In terms of how the company is run, Pichai’s appointment will mean few significant changes, at least for now. Both Page and Brin will remain on the board, with Brin's role eliminated and Pichai "responsible and accountable for leading Google, and managing Alphabet’s investment in our portfolio of Other Bets" as CEO of both Google and Alphabet, the company wrote in a press release.  

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Along with CFO Ruth Porat, Pichai has led Alphabet’s shareholder calls and served as the more approachable public face of Alphabet management in recent years, appearing at events and even at a Congressional hearing late last year probing Google’s data collection practices.

In a note on Wednesday, MKM Partners analyst Rohit Kulkarni wrote that while the management change is largely a “non-event” for Google’s immediate prospects, investors may interpret Pichai’s appointment as a shareholder-friendly move that extends a trend of more disclosures and stock buybacks.

Pichai has “developed a positive aura and stellar reputation since he became the CEO,” Kulkarni added. Shares of Alphabet are up roughly 100% since Pichai assumed the role of Google CEO in August 2015, well outpacing the S&P’s gain of 60% in the same period.

Facing criticism over its vague approach to investor communications -- it has never disclosed how much YouTube makes, for example -- Alphabet has shown some willingness to reveal more about its business this year. In June, for example, Pichai and Porat disclosed an $8 billion annual run rate for Google Cloud, which was the first time it had put a number on that division’s revenue prospects since early 2018.

Porat also provided slightly more detail about the biggest contributors to Alphabet’s revenue growth, telling investors that Google Cloud was the third-largest driver of growth behind mobile search and YouTube. 

If Alphabet's new management takes the opportunity to re-evaluate its approach to disclosures and heighten transparency, that's “likely to be positive for shares,” wrote JMP Securities analyst Ronald Josey on Wednesday.