On Feb. 1, Google parent company Alphabet Inc. (ticker: GOOGL) announced that it will be doing a 20-for-1 stock split, meaning that for every one share an individual owns, he or she will receive 19 additional shares, based on the records of July 1. The stock split will go into effect on July 15, 2022 and will begin trading at its new price on Monday, July 18.
This announcement was accompanied by its fourth quarter (Q4) earnings report, in which the company announced that its stock was up 32 percent year over year–much higher than the average stock market return of 10 percent per year. Both the stock split and revenue growth highlight that the tech giant remains strong, withstanding the obstacles brought on by the COVID-19 pandemic, and most recently, rampant inflation.
A stock split is when a company issues more shares of its stock to existing owners while decreasing the value of the market price after the split. These typically occur when a company is flourishing, causing its stock price to rise and creating difficulties for individual investors to buy a full share. In turn, a business will split the stock in order to gain new buyers via a lower purchasing cost per share. A stock split does not decrease the value of the company; the number of shares increases, but the price decreases, allowing the market capitalization value to remain the same.
Addressing the announcement, Alphabet chief financial officer Ruth Porat stated, “The reason for the split is it makes our shares more accessible…We thought it made sense to do.”
Alphabet has carried out two previous stock splits, one occurring on March 27, 2014, and the other on April 27, 2015. Since then, the company has rapidly grown.
On Feb. 11, GOOGL closed at $2,685.65, and once the stock split goes into effect in the summer, the market price will be around $135 per share if Friday’s closing value is taken into account. Through this, Alphabet’s goal of creating a more affordable market price will be accomplished.
Some think that Alphabet’s split may set off a ripple effect for large companies such as Amazon (ticker: AMZN) to follow suit–especially since the internet sales company will be the only big tech giant left with a market price in the thousands after July 15.
Experts advise investors to buy GOOGL, as stocks have traditionally performed well in the time leading up to the split. This is exemplified by looking back to the Apple (ticker: AAPL) and Tesla (ticker: TSLA) stock splits in 2020; their market values soared as the split approached–which garnered much attention from individual investors. However, there is no added value buying before or after the split. Either way, with Alphabet being a strong leader in the market, the company is likely to see continued gains in many years to come.
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