Google (GOOG) is splitting its shares on April 5, and the most important thing you should know about this move is that it is designed to allow Google Founders Larry Page and Sergey Brin to retain control of the company.
Existing Google stock shareholders holdings will be split into one class A share that has voting rights and 1 class C share that has no voting rights. As Google has used their stock to pay bonuses and buy other companies, they have issued shares that diluted the founders voting control.
In the future shareholders will be able to use this newly created Class C shares to make acquisitions and reward employees so voting control will not be diluted. The new class C shares will retain the classic GOOG ticker while the Class A shares will trade as GOOGL.
In the big picture the split will generate some noise but in the big picture doesn’t meant that much. Current Google stock shareholders will retain the same percentage ownership rights as they have now. It is only future buyers of GOOG shares and those who get them as incentives or in an acquisition that will have no voting rights at all.
Splitting Google stock may make the shares a little more volatile as it opens the stock up to more activity from day traders who were kept at bay by the four digit stock price, but that can actually be good for us as it creates buying opportunities from time to time.
There are a lot of good things going on at Google right now. Its shedding the money-losing operation of Motorola Mobility by selling it to China based Lenovo (LNVGY) for almost $3 billion while retaining the valuable patent portfolio. Google have a new deal with Luxottica (LUX) to produce Google Glass with Oakley and Ray Ban frames that increases the potential for retail distribution of the product.
Google Gmail turns 10 this year and has grown to a significant presence in the world of web based email accounts. And of course Google continues to simply kill it with its Android software systems and platform.
The company continues to turn in impressive results as well. Fourth quarter revenues were up 17% and profits grew by more than 14% year over year. That’s a solid performance for a company with almost $60 billion in annual sales.
The solid fundamentals were recognized by Portfolio Grader and in February Google stock was upgraded to a Buy. Any selling around the split should be used as an opportunity to buy the dip in the GOOG shares.
One interesting development from the split is that it will change the S&P 500 in dramatic fashion. S&P has decided it will hold both GOOG and GOOGL shares, so technically the index will, for the first time ever, hold 501 stocks. This could give some index fund managers a headache for the next few days!