Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) stock had an amazing 2021. Its fundamental performance was excellent. That strong performance translated into a stock that appreciated by 66.75% throughout 2021.
That rapid increase has resulted in share prices that flirted with the $3,000 threshold at times during 2021. That raises a question of when too much of a good thing can become a bad thing.
After all, shares of stock priced at multiple thousands of dollars puts up a barrier, albeit a somewhat artificial barrier. As we know now Google has decided to undertake a 20-for-1 stock split. Does it matter?
I think it does. Yes, it’s true that investors could already purchase fractional shares of GOOG stock prior to the stock split which will happen July 15, 2022. Investors who want to purchase $100 worth of GOOG stock can go out and do so now. That’s true of pretty much any nominal value of a share of Google stock.
And once July 15 comes, Google shareholders will receive 19 additional shares of GOOG stock. If today’s prices of $2,683 hold, that means shareholders will hold title to 20 shares of GOOG each worth $132.50 rather than a single share valued at $2,650.
Equity is Equity
It doesn’t matter in terms of value. Your share of equity in the company and the rights that confers don’t change. But it does change the psychology surrounding GOOG stock. CNBC reported that the stock split makes Google more affordable for more people.
Yes and no. Yes, more investors will find Google more approachable at $132.50 per share than at $2,650 per share. But no, Google isn’t suddenly cheaper. Again, investor equity remains the same regardless of how it is distributed. $100,000 of equity in Google is $100,000 of equity in Google whether it equates to 30 shares or 600.
But Google priced at $3,000 only reinforces some kind of psychological barrier and the idea that Google is a gargantuan monopoly. Creating 20 times as many shares doesn’t change the validity of the arguments underpinning those ideas.
But it does change the way investors will look at Google. Maybe that is a truly powerful factor. It sounds wishy washy, but there could be something legitimate behind it.
Whether it matters or not and whether it increases stock prices over time remain to be seen. But Google should continue to rise regardless. That’s because it had an incredibly strong 2021.
Incredibly Strong Year
Google watches a lot of bad publicity for its reach and its policies. Investors are right to speculate when some things may catch up to it. But what is much harder to argue against is the raw performance of the company.
By one important measure Google has more than doubled in size since 2019. In 2019 Google reported a net income of $34.343 billion. That was already a pretty phenomenal number. For the sake of comparison the gross domestic product (GDP) of Lebanon in 2020 reached $33.38 billion in 2020. And Lebanon is ranked approximately 80th of the 216 nations on earth by that measure. It isn’t a particularly weak country.
What’s amazing is that Google’s 2021 net income reached $76.003 billion. That means it increased by 112.5% between 2019 and 2021. So despite arguments about Google’s reach, scale, and breaches of privacy it remains incredibly difficult to bet against it. I think investors know this well. Those who don’t like Google choose to avoid it rather than bet against it because it’s too hard to beat it.
What to Do
I don’t think that there is any legitimate reason to bet against GOOG stock moving forward. The idea that a democratic administration might result in increased regulation probably doesn’t have much weight currently. The nation has much bigger problems that require addressing.
Meanwhile Google will continue to grow and grow. It is the same incredibly attractive tech juggernaut it has been for a long time and that isn’t changing in the foreseeable future.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.