Shareholders of internet and technology giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) may have woken up to a disturbing sight with their investment down 95%. In reality, nothing fundamentally changed for GOOGL stock as both classes of publicly available Alphabet shares are now trading at their split-adjusted rate. Nevertheless, several investors have queried the GOOG vs. GOOGL dynamic.
Back in early February, Alphabet lit up Wall Street after announcing both a 20-for-1 stock split and a strong holiday season. After removing traffic-acquisition costs, revenue in the fiscal fourth quarter came out to $61.9 billion, comparing very favorably to the $46.43 billion posted during the year-ago quarter.
As well, Alphabet executives decided to implement a stock split to reduce the massive per-share price of GOOG and GOOGL stock, eventually leading to the current pricing situation. However, stock splits by themselves don’t impact the market capitalization. Against Friday, shares are basically trading at parity.
Still, the stock split raises renewed interest about Alphabet’s multiple equity classes.
A Brief History Behind GOOG vs. GOOGL
When Alphabet became a publicly traded company, retail investors only had access to GOOGL stock or Class A shares which conferred the traditional one-share, one-vote framework. Another set of shares – structured as Class B – commands 10 votes per share. However, only the founders and insiders hold this category of equity ownership and it is not publicly available.
What is available to retail investors, however, is the Class C security, or GOOG. Mainly, the discussion behind GOOG vs. GOOGL centers on voting rights. Basically, the latter has them while the former does not. It’s also the reason why the Class A shares sometimes trades at a premium to the non-voting Class C variety.
For those seeking a more comprehensive history behind the GOOG vs. GOOGL dynamic, investors should consult InvestorPlace Financial News Writer Brenden Rearick’s excellent breakdown of the matter. However, the main purpose behind the initial split was to cut the price of Alphabet shares without losing voting power.
Why It Matters
As MKM Partners’ Rohit Kulkarni stated in a research note, the GOOG and GOOGL stock split does not change the investment firm’s fundamental outlook. However, “Alphabet might attract some extra attention from retail investors due to its lower price tag.”
Given the incredible impact that retail investors have had on the market throughout the trailing two years, the split could be technically significant for GOOGL stock and its non-voting counterpart.
Another factor to consider is that analysts generally regard stock splits as a positive development, indicative of exceptional demand for the underlying security. It’s quite the opposite scenario of SoFi Technologies (NASDAQ:SOFI), which is mulling a reverse split to artificially lift the share price.
Still, the more important factor for shareholders of either GOOGL stock or GOOG is next week’s earnings disclosure. Therefore, investors should keep the split news in perspective.
On the date of publication, Josh Enomoto 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.
