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Google parent company, Alphabet (GOOGL), recently made its stock much more affordable for the retail investor with a serious stock split of 20-for-1. The third largest public company in the United States has long been out of reach for too many retail investors who don’t necessarily have thousands of dollars to buy a single share in the company.
The announcement came with the tech giant’s quarterly earnings statement after markets closed on Tuesday—and the news also sent Alphabet’s stock up immediately following the announcement, in premarket trading Wednesday, by nearly 11 percent.
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The company’s board of directors had approved the 20-for-1 stock split as a one-time special stock dividend on each share of the company’s Class A, B and C stocks, the statement purports. The tech giant will execute the 20-for-1 stock split in mid-July. The stock split is subject to stockholder approval to increase the number of authorized shares of the aforementioned stock classes.
This all means that, on July 15, every investor who was a shareholder at the close of business on July 1, will receive 19 additional shares for each share of the same class of stock that they own. It also means that each individual share of Alphabet stock will be far less costly.
In short: Stock splits lower the price of a stock, which can help make it more attractive to retail investors. Stock splits happen when companies boost the number of their outstanding shares to, in turn, boost their stock’s liquidity. A split works by reducing the overall cost of shares.
Alphabet’s stock has more than doubled since the start of 2020—and, amid the COVID-19 crisis, even more people are getting invested. Along with announcing the split, Alphabet also shared a strong earnings report for the final quarter of 2021.
The business is looking promising. For example, Google Ad sales have grown nearly 33 percent year-over-year, reaching $61.2 billion in the last three months culminating in December. The growth helped generate $20.6 billion in profits last quarter.
Ruth Porat, CFO of Alphabet and Google, said in the statement: “Our fourth quarter revenues of $75 billion, up 32 percent year over year, reflected broad-based strength in advertiser spend and strong consumer online activity, as well as substantial ongoing revenue growth from Google Cloud. Our investments have helped us drive this growth by delivering the services that people, our partners and businesses need, and we continue to invest in long-term opportunities.”
The move marks the second time the company has split its shares since it went public in 2004. And Alphabet isn’t the first major tech company to announce a stock split. In fact, the split comes after both Apple and Tesla did the same. However, the 20-for-1 ordeal far surpasses Apple and Tesla’s August 2020 stock splits of 4-for-1 and 5-for-1, respectively.
While massive stock split ratios are a rarity, they have happened before. For example, in 2018, Amalgamated Bank also executed a 20-for-1 split. And, in June 2021, The Trade Desk established a 10-for-one stock split.
For investors who may be wondering whether they’re better off buying into a stock like Alphabet before a split, the moment the split happens or after the mania of a split dies down, it’s worth noting that the declaration of stock splits are generally considered positive for companies. They forecast a continued increase in the company’s shares.
Nevertheless, stock splits are considered non-events for businesses, as in, they should have no impact on operations. Therefore, it generally does not make a difference whether you invest before or after the split. So, while stock splits can certainly make shares more affordable, more attractive and, therefore, more in demand, it’s also worth noting that the value of a company’s share does not change based on the split itself.
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Download Q.ai for iOS for more investing content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay fees or commissions.
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