DA Davidson says complete breakup ‘only way forward’ for Alphabet

DA Davidson analyst Gil Luria believes the “only way forward” for Alphabet (GOOGL) is a complete breakup that would allow investors to own “the business they actually want.” Investors want a “big-bang breakup, not isolated spin-offs,” the analyst tells investors in a research note. DA thinks Alphabet is headed towards an eventual “passive aggressive spin off” of Network and possibly Chrome to appease the Department of Justice, after dragging its feet for a while. The firm believes the debate on Search “will not get better,” and says a sum-of-the-parts valuation “only works if the company is willing to take action.” The debate on Search is “irrelevant, since it may not be concluded for a while,” according to DA Davidson. “By keeping the conglomerate structure, management is dooming all of its businesses to the 16x Search multiple, instead of allowing them to trade at the much higher NFLX/Azure/TTD/TSLA multiples,” the firm contends. Its analysis concludes Alphabet is worth $243 per share in aggregate upon a break up, and closer to $300 per share if an independent chips business started selling outside of the Alphabet family. DA has a Neutral rating on Alphabet with a $160 price target