Google parent Alphabet is splitting its stock 20-for-1. Here's why, and what it means for investors.
- Google's parent company Alphabet announced a 20-for-1 stock split in its blockbuster earnings report Tuesday.
- It was a surprise announcement aimed at making shares more affordable and appealing to smaller investors.
Google's parent company Alphabet is planning to split its stock 20-for-1, it revealed in its blockbuster earnings report Tuesday.
It was a surprise announcement, and is aimed at making its four-figure shares more affordable and appealing to retail traders. The plan helped send Alphabet stock soaring more than 10% in premarket trading.
Here's what a stock split is, why Google is doing it, and what it means for investors.
What is a stock split?
A stock split is when a company divides existing shares into multiple new shares. It's a way for businesses to increase the amount of shares on the market without changing their market capitalization.
Although the number of shares goes up, the total dollar value of each shareholder's investment stays the same.
For example, a shareholder might own 10 shares worth $100 each in a company. If the stock split 2-for-1, afterwards they would own 20 shares worth $50 each. Their total holding would still be worth $1,000.
Why is Google splitting its stock?
Shares in Google's parent company Alphabet have shot up more than 230% in the last five years, to stand at $2,752.88 on Tuesday. That looks pricey to many investors.
Alphabet announced Tuesday that it plans to split its stock 20-for-1. The move will dramatically lower the price of each share, so as to make them more affordable and appealing for smaller investors.
Retail investors can, of course, buy fractions of Alphabet shares on trading platforms. But this way, they will be able to own more shares in the company.
Analysts said the move may also make it easier for the company to enter the Dow Jones Industrial Average. The Dow currently has complex rules that bar Alphabet because its four-figure share price would throw off the weightings in the famous gauge.
What does it mean for investors?
If Alphabet's shareholders approve the plan, then all holders of the company's three types of stock (class A, class B, and class C) will be sent a dividend of 19 additional shares on July 15, the company said Tuesday. They will receive the same class of stock.
At the current price, class A shares, ticker GOOGL, would become worth around $138, compared with more than $2,750 on Tuesday.
Gaining entry to the Dow could further boost the stock, as index funds that track the average would be forced to buy. The fundamentals and market capitalization of the company would be unchanged.