Yesterday, Google parent company Alphabet announced its Q4 results, which has seen the company’s stock jump over 10% in pre-market trading at the time of this writing. One of the big reasons for the price jump: Q4 sales were up 32% year-over-year to $72.3 billion, according to Barrons.
But another reason for the jump in price may also have to do with a big announcement Google made: It’s splitting its stock. But why is Google stock splitting, and what does that mean for investors? Here’s what you need to know.
- What’s a stock split? A stock split is when a company has decided to divide its shares by a certain factor, such as 2-to-1, for example. This results in more shares than previously existed before the split. So, if a stock splits 2-for-1, that means there are now double the number of shares in existence than before the split: If there were 15 million shares of a stock and then it splits 2-to-1, there are now 30 million shares of that stock.
- How much is Google splitting its stock by? A huge amount. Google has announced its stock will spit 20-to-1. That means, after the split, there will be 20 times the amount of GOOG shares available than what’s available today.
- So, will owners of Google’s stock before the 20-to-1 split have 20 times the amount of shares once the stock splits? Yes, exactly. For example, if you own 1,000 shares of GOOG today, after the stock splits 20-to-1, you’ll own 20,000 shares of GOOG.
- Does the 20-to-1 stock split mean the value of my GOOG shares will increase 20 times? Sadly, no. The other result of a stock split (besides more shares coming into existence) is that those shares are proportionately now worth less. So if a stock splits 2-for-1, the value of the shares is now half of what they were before the split. With GOOG shares set to split 20-to-1, each share will be worth 20 times less than it was before.
- So, my shares will be worth less after the split? Yes, but you’ll also have 20 times the number of shares post-split, which means the total value of your GOOG shares will remain the same.
- Does the stock split make Google (Alphabet) a more valuable company? Nope. While there will be 20 times more shares of the company after the split, each share will be worth 20 times less, meaning the market cap of the company will remain the same.
- So, why bother splitting the stock? Ruth Porat, Alphabet’s chief financial officer, said (via Bloomberg), “The reason for the split is it makes our shares more accessible. We thought it made sense to do.” What that means is the split makes GOOG stock more accessible for retail investors like you and me. Currently, GOOG stock is sitting right around $3,000 per share, which makes buying even one share hard for the average investor. But after the split (if GOOG stock were to still be $3,000 per share right before), one share of GOOG would only cost $150 per share, making it much more affordable to retail investors.
- When do GOOG shares split? According to The Wall Street Journal, shareholders of record as of July 1, 2022 will receive an additional 19 shares for every share they own on Friday, July 15. The stock will then begin trading under its split-adjusted price on Monday, July 18.
This article appeared in fastcompany.com.
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