Google, along with other tech stocks, hasn’t had a great 2022. Still, there have been some large-scale changes for the company, specifically a stock split. Google’s stock split could mean a few things to investors, especially to anyone with a stake in the company.
Today, we are going to look at Google, specifically the stock split, and find out what it means for you. Let’s get started!
What is a Stock Split?
Before we talk about Google’s stock split, let’s briefly talk about what a stock split actually is for anyone who doesn’t know.
A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to its existing shareholders. The value of each individual share is reduced in proportion to the increase in the number of shares, so the total value of the shareholder’s holdings remains the same.
For example, if a company employs a 2-for-1 stock split, it will issue one additional share for every share that a shareholder owns. If a shareholder owns 100 shares valued at $50 each, the total value of their holdings would be $5,000. After the stock split, the shareholder would own 200 shares, but each share would be worth $25. The total value of the shareholder’s holdings would still be $5,000, but the value of each individual share would be halved.
In simple terms, a stock split results in more shares being issued, although all shares are now worth proportionally less.
Google’s Stock Split
Stock splits are relatively common in the stock market and Google decided to initiate its own this year. In July 2022, Google issued a 20-for-1 stock split, meaning that shareholders were issued 20 shares for every single share owned. For reference, someone owning 10 shares pre-split, would own 200 shares post-split.
Importantly, Google split ALL of its stock. When talking about Google, it’s important to remember that the company has three types of stocks, A, B, and C-type shares. Class A shares are the most common and have one vote per share. Class B shares have ten votes per share and are held primarily by insiders and founders of the company. Class C shares have no voting rights and are intended for general shareholders. The split was a 20-for-1 across all A, B, and C shares. Additionally, all of these shares are classified under Alphabet, the parent company of Google.
Right before the end of the day on July 15th, Google (parent company Alphabet) was trading for a whopping $2,255.34 per share. When the market opened up again on July 18th, the share price was around $112, a near-perfect twentyfold reduction of share price from the previous market close. While the share price was less, it’s important to remember that the number of shares increased by twentyfold. The pie is still the same, there are just more slices.
Why Did Google Split Its Stock?
Most of the time, stock splits are done for the benefit of investors. For many people, buying a single share of Google for $2,255.34 isn’t something worthwhile. Essentially, companies may perform stock splits in order to make their stock more accessible and affordable to a wider range of investors.
Now, with a cheaper “buy-in,” shares of Alphabet are more readily bought by people interested in investing. These changes are primarily felt by retail investors, as opposed to institutional investors.
A retail investor is an individual who purchases securities for their own personal or household accounts. Retail investors are typically small-scale investors who buy and sell securities on their own, rather than through a professional investment firm. On the other hand, an institutional investor is a large financial organization that invests on behalf of its clients. Institutional investors can include pension funds, mutual funds, insurance companies, and hedge funds.
These investors tend to have significantly larger amounts of capital to invest and often make investments in a more professional and systematic way. Retail investors, while less cash-flush, are more in number and can provide some extra cash for a company after it splits.
What It Means for You:
For those NOT currently holding Alphabet stock:
If you aren’t currently holding any shares of Alphabet, the split won’t impact your portfolio directly. Still, it could mean an opportunity to gain some exposure in the company if the previous price was too expensive. Paying over $2,000 for a single share is a lot, but now, the much more reasonable $88 is easier to stomach. Google’s stock split could mean an easy entry point for anyone looking to invest in Google who didn’t have a lot of extra cash before.
For those currently holding Alphabet stock:
For investors who already held shares of Alphabet before the split, the primary difference is that your portfolio will now reflect a larger number of shares with a smaller individual price. The overall value of your position won’t have changed (aside from standard market fluctuations). Additionally, this could be an opportunity to purchase more shares if the previous price was a deterrent. Otherwise, the split doesn’t impact you in any real way.
Google’s History with Stock Splits
There have been other stock splits before the current one. The previous splits were much less and included numbers that weren’t exactly even, but they were done for a specific purpose.
On April 3rd, 2014, Google initiated a 1,998/1,000 split, meaning that for every 1000 shares owned, a holder would receive 1998 shares. This was intentionally done to split these shares off into a new category of shares that are now referred to as Class C shares. Since the class shares don’t have voting rights, the split allowed Larry Page and Sergey Brin, the founders, to retain voting control of the company without diluting their position.
Another split happened on April 27th, 2015, when Google initiated a 2.7455/ 1,000 “split,” although it wasn’t exactly a split. Instead of splitting, Alphabet issued 2.7455 shares for every 1,000 shares held, but this specifically applied to Class C shares. The additional shares were added as a form of compensation since the shares at the time were trading at a discount to the Class A shares since they didn’t come with voting rights. This small addition attempted to correct the divergence in price.
These creative ways of splitting and adding stocks have resulted in one of the more unique stock structures in the marketplace. Few companies have three classes of shares as Alphabet does, but the system seems to work for them. The most recent split in 2022 was the first split that was purely done as a way to encourage more trading from smaller-cap investors.
Knowing the Essentials
Let’s cover the essentials for Google and its recent stock split.
- The most recent stock split for Google was in July 2022 and was a 20-for-1 split, meaning each holder with a single share received 20 in compensation, with a 20x reduction in price for each share.
- Google has three classes of stock, all three of which were split in the 20-for-1 action.
- For most people, the split simply means it’s cheaper to buy a few shares in Google without spending thousands of dollars.
- Previous stock splits from Google have been more targeted with the intention. The first one, for example, created the Class C shares, while the second corrected price discrepancies between the non-voting and voting shares. This recent one was primarily to make the steep share price more manageable for smaller investors.
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