Investors are cheering the mess at the Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) formerly known as Google.
And it is a mess. When a unit's CEO is attacked, by name, by a man who sold his start-up to it for millions of dollars, you have a problem.
Nest isn't the only "moonshot" that is causing agita. There are reports that Google is openly shopping its robotics lab, Boston Dynamics, and there are reports of Boston Dynamics being "broken up" for failing to deliver revenue. There are problems at the life sciences unit, Verily.
Yet the stock popped 2% on March 29, and seems poised to go even higher. Investors like the idea that CFO Ruth Porat is delivering discipline at the search giant, separating the gold out from the dross, and letting the sins of the past be exposed to air so they can be expunged.
But if CEO Larry Page is not very good at finding underlings for what amount to "hobbies," what does that say about his general leadership?
Google's growth is slowing. Revenues rose just 17% between its December 2015 quarter and the previous year. Since the blow-out second quarter of 2015 came in, the stock is up just 16%.
More important the company appears to be getting lazy. Google Plus is finally dead, Google Finance isn't getting updated regularly (the last Google financials on it at this writing were from last June) Google News still produces no revenue. Google Fiber is becoming just another cable service and that can't help its reputation. The Google Cloud seems to be getting a new lease of life under Diane Greene, but those revenues aren't broken out so it's hard to tell.
Google's problems, in other words, may go deeper than just a few miserable leaders at some worthless moonshots. Google is getting lazy and it's getting sloppy. Larry and Sergey are now worth more than the Koch brothers, but they seem not to have decided what they want to be when they grow up.
Which begs the question, why then is Google worth 33 times earnings? The search franchise remains intact, and the company's ability to monetize both it and its YouTube videos continues to impress. But even YouTube is now catching competition, or did you notice it could have become Netflix (NASDAQ:NFLX) or Amazon Prime (NASDAQ:AMZN) and chose not to, because, reasons?
I think Alphabet is going through a sort of mid-life crisis. The leaders are the right age for it. But would a Porat-led Alphabet really deliver the goods shareholders are paying for when they spend 33 times earnings for the stock? Can the Morgan Stanley (NYSE:MS) approach really work in Silicon Valley, or do the best programmers really need a little romance, or at least the promise of romance, to perform?
My spidey sense says this company is in trouble. If Porat decides to split the stock and hand out dividends in the next year, sell.
