When investing in Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), should you buy GOOG or GOOGL stock? It’s a question on the minds of every prospective buyer of Alphabet stock — and it’s not without a fair bit of controversy.
Google announced a 2-for-1 stock split way back in 2012, and it finally took effect in early 2014. The result: GOOG was joined by GOOGL, each representing different classes of Google stock.
Shareholders, at the time, resisted this change. Many were unhappy with what they perceived as an attempt by Google’s cofounders to hoard control over Google. While GOOGL stock allowed for voting rights, GOOG stock did not.
Editor’s note: This article has been updated from an earlier version.
Google’s unusual stock split influenced other companies to do the same, with Under Armour (NYSE:UAA, NYSE:UA) and Snap Inc (NYSE:SNAP) both issuing non-voting classes of stock. As a result, the S&P 500 Index introduced a change that would bar companies from its index if they used a multiple share structure.
Despite the change in the S&P 500 to no longer allow companies with multiple share classes, Alphabet’s GOOG and GOOGL have been “grandfathered” in.
Confused about what the difference is and whether you should care? Don’t worry — we’ve broken down the Google stock split for you and rounded up some of the best commentary we could find.
GOOG vs. GOOGL: What’s the Difference?
Yeah, some stock splits just result in more shares of stock and thus a lower share price per share. But that’s not the case here. Like we said, there are two different Google stock tickers to choose from.
Why? Well, the big differentiator is simple: voting rights. And the motivation was obvious: to help founders Larry Page and Sergey Brin stay in control.
A quick summary:
- GOOG stock represents Class C shares, while GOOGL stock represents Class A shares.
- Class C shares (GOOG) have no voting rights, while Class A shares (GOOGL) have one vote each.
- Anyone who owned Google stock before the split got one share of the voting GOOGL stock and one share of the non-voting GOOG stock.
- Of course, there are also Class B shares of Google stock, which do not trade in the public market, are owned by Google insiders and each get ten votes.
- The fine print: Every time the company sells a share of Class C stock, it also must convert one Class B share into a Class A share.
- Also, Google (as the result of a class-action settlement around the stock split) will compensate non-voting GOOG stock investors in a year if there is a substantial difference in price between the two classes.
- Google Class A and C shares were both represented on Nasdaq OMX indices such as the Nasdaq-100 through June 20. Thus, the Nasdaq-100 actually had 101 constituents during that time.
- Google Class A shares stopped being listed on Nasdaq OMX indices after the quarterly rebalance on June 23, 2014, and Google instead will be represented on such indices by the Class C shares. Class A shares will continue to trade on the exchange, however.
The Google Stock Split: What the Experts Are Saying
Investors in Alphabet stock — and, even more importantly, potential investors — must know more than just the specifics of the split, though — they must know what it means for their own portfolios.
Initial Reactions: According to Dan Ritter at Cheat Sheet, not much changed as a result of the GOOG vs. GOOGL distinction. As he wrote in 2014:
“This may sound like a somewhat contrived way for executives to maintain control of the company, and it kind of is, but this is fine. A bet on Google has always been a bet on Brin, Page and Schmidt. They’ve argued that from from the beginning, and it’s worked out well so far. The stock split is a mechanism to preserve what’s worked for years at one of the world’s greatest Internet and technology companies.”
Michael Liedtke, a tech writer for The Associated Press, even noted that Google isn’t the only company to pull this kind of trick. As he put it:
“Although still rare, Google’s reliance on nonvoting stock to protect their founders’ interests isn’t unprecedented in the technology industry. Facebook (NASDAQ:FB), LinkedIn and Yelp (NYSE:YELP) all have issued nonvoting stock for the same reason as Google. Both cable and Internet service provider Comcast (NASDAQ:CMCSA) and cable-TV channel network Discovery Communications (NASDAQ:DISCA) already operate under similar stock structures to the one that Google is setting up.”
At the time, it was thought that the new Alphabet stock price might breed a little bit more volatility. As Louis Navellier explained:
“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.”
Since Google’s stock split, there hasn’t been much of a price difference between the two classes of Alphabet stock. As of Jan. 4, 2019, GOOG stock was worth $1,065.29 per share, while GOOGL stock was going for a 0.9% premium: $1,075.25.
Will Alphabet Stock Split Again?
With both GOOG and GOOGL stock trading north of $1,000 per share, the question now is if Alphabet will do another stock split in 2019 or beyond. The answer is simple: Not until Larry Page and Sergey Brin have strong reason to.
Previously, Google split its stock for reasons that went beyond simply the price of its shares. While many investors want Alphabet to issue another stock split, it’s unlikely to do so any time soon.
In 2015, Google restructured itself as Alphabet Inc., which was described in detail by Larry Page:
“What is Alphabet? Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.”
Sundar Pichai was named CEO of Google, leaving him in charge of Google’s “namesake” brands, such as Search, Ads, Maps and more.
With this structural change, Google’s cofounders, Sergey Brin and Larry Page, are able to retain their 51% influence, while lessening the infighting and power imbalances due to corporate sprawl.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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