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Google parent Alphabet says its 20-for-1 stock split will take effect from July, and grant an additional 19 shares for each share of the same stock-class owned.
Alphabet Inc (NASDAQ: GOOGL) announced on Tuesday, February 3rd, that its board greenlit the company’s decision to go ahead with a 20-for-1 stock split. The announcement came as part of Alphabet’s quarterly earnings statement, where the company posted 32% revenue growth as part of a record year. According to Alphabet, its stock split initiative provides an opportunity to interested buyers at a lower price. As Alphabet’s chief financial officer Ruth Porat said in a media session:
“The reason for the split is it makes our shares more accessible…we thought it made sense to do.”
Following the announcement, the tech-holding company’s stock rose to more than 9% in after-market trading.
Breakdown of the Alphabet Stock Split
According to an earnings statement, the Google parent will split Class A, Class B, and Class C shares. The company says it will reduce Class A shares to approximately $138 based on Tuesday’s closing price of $2,752.88. Alphabet is doing this is to attract a substantial number of small-time investors who ventured into the stock market during the pandemic. Subject to shareholder approval, Alphabet’s 20-for-1 stock split kicks into effect at the close of business on July 1. On July 15, each shareholder will receive 19 additional shares for each share of the same class of stock owned.
The last time Alphabet shares were this cheap was about 17 years ago – in 2005. Ed Clissold, chief US strategist at Ned Davis Research, also weighed in on the recent stock split development. According to Clissold, small, unsophisticated traders can easily purchase shares at a lower price. This is as opposed to acquiring fractional stocks through brokerage firms. However, he also stated that institutional investors can still buy as many shares as they want, regardless of price. This may suggest a win-win situation for everyone involved. According to Clissold:
“Institutional investors can buy in size and the price per share doesn’t matter. But for a smaller investor, a lower price-per-share makes it easier for them to buy a reasonable number of shares.”
In 2012, Google added a third class of shares – Class C – with no voting rights. This joined the already existing Class A company shares, which carried a vote per share, and Class B, which carried 10 votes. In addition, the Class B shares are mostly in the possession of founders and early company investors. Google maintained this stock structure through its 2015 rebrand to Alphabet Inc.
Similar Move by Apple
Alphabet’s stock split comes well over a year after tech giant Apple (NASDAQ: AAPL) also split its stock. The consumer electronics manufacturer issued three shares for every share owned by people. Currently, Alphabet and Apple are two of the few tech establishments to see their market cap hit the trillion-dollar territory.