The trillion-dollar behemoth sitting in Silicon Valley might actually be worth a whole lot more in pieces than as one massive corporate entity. And no, this isn't some revolutionary idea I just cooked up—investors have been muttering about it for years. But lately? Those whispers are turning into something closer to shouts.
Alphabet—Google's parent company and the keeper of so many technological keys to the future—has a valuation problem.
It's pretty simple, really. The market values what it can see clearly and tends to discount everything else. And boy, is Alphabet opaque. It's like trying to assess the value of a mansion by peering through a keyhole.
Take Waymo. What's a pioneering self-driving technology company actually worth in today's market? Hell if we know. Its financial performance and strategic milestones are buried in what Alphabet calls "Other Bets"—corporate-speak for "stuff we're doing that isn't Google search." (I've covered tech conglomerates for years, and this kind of financial bundling always obscures more than it reveals.)
The chip division? Same story. In a world absolutely obsessed with AI and the silicon that powers it, Alphabet's chip development efforts could be extraordinarily valuable. But investors assign approximately zero value to it. Zero!
And then there's YouTube. Good grief.
Here's a platform with over 2.5 billion monthly active users that pulled in roughly $30 billion last year. If YouTube stood alone, it would likely command premium valuation multiples compared to other social platforms. Instead, it's just another line item in the "Google Services" bucket.
Google Cloud might be the most frustrating example. After years of playing catch-up to AWS and Azure, it's finally profitable with over $30 billion in annual revenue. Yet it receives a fraction of the valuation multiple that investors happily assign to its competitors. Why? Because it's buried inside the Google machine rather than standing on its own two feet.
We've seen this movie before. Remember when eBay spun out PayPal back in 2015? The combined market value of both companies quickly exceeded their previous unified value. IAC pulled the same trick with Match Group and other assets. The market, for better or worse, prefers focused businesses where the growth story isn't muddied by unrelated divisions.
Now, there is a decent counterargument here. Alphabet's structure allows these moonshot projects to be bankrolled by the absolutely bonkers profitability of the search business. Would Waymo have survived as a standalone entity while burning billions with minimal revenue? Probably not.
But—and this is a big but—at some point, hiding potentially valuable businesses inside the mothership starts destroying shareholder value instead of creating it.
Look, even conservative math suggests there's significant money being left on the table. Value the core search business at a reasonable multiple, then add separate valuations for YouTube, Cloud, Android... throw in even modest figures for Waymo, DeepMind, and the chips business... and you quickly reach a sum-of-parts valuation that exceeds the current market cap by 30-50%.
The question that keeps me up at night (well, one of them anyway) is whether Alphabet's leadership has any interest in unlocking this value. Thanks to the company's dual-class structure, founders Larry Page and Sergey Brin, along with CEO Sundar Pichai, maintain control regardless of what outside shareholders might want. So far, they've shown about as much appetite for major structural changes as I have for kale smoothies.
But as the valuation gap becomes more glaring and activist investors circle—which they inevitably will—pressure could mount. After all, even the most innovation-minded executives have fiduciary duties.
If Alphabet's children really would be worth more on their own... eventually someone in Mountain View might have to seriously consider letting them leave the nest.
