How Google's Massive 20-for-1 Stock Split Will Help Investors
A single share of Google stock is about to be a lot more affordable.
On Tuesday, the Google's parent company Alphabet announced a 20-for-1 stock split alongside its most recent earnings report. The stock price climbed following the earnings report, but based on Tuesday's closing price, one share of Google would cost around $138 after the split — far lower than its closing price near $2,750.
The split means that in July, Alphabet shareholders will get 19 additional shares for each share they already own, and new investors can buy one share at a much lower price. Alphabet has three classes of stock, and the split will include all three.
Apple and Tesla both announced stock splits in 2020 — four-for-one and five-for-one splits, respectively. But stock splits this large are very uncommon. Google’s stock split will be one of the biggest in the S&P 500’s recent history, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
“You really don't get these kinds of high power splits unless it's coming out of a merger, reorganization or bankruptcy,” Silverblatt adds. “It’s a vote of confidence for the company.”
Alphabet's stock price popped around 7% Wednesday morning.
Why Google is splitting its stock
Many investors would be hesitant to buy shares worth thousands of dollars apiece. In a conference call, Ruth Porat, Alphabet's chief financial officer said the reason for the split is to make shares more accessible.
While the stock split doesn't change the company's underlying fundamentals, it does make the stock "more palatable" for investors, Bespoke Investment Group wrote in a note to clients Wednesday morning.
"In a world where most brokerage firms now offer fractional shares, a company's share price should be even less of a factor, but from the psychological perspective of an individual investor, it feels better to own a few shares of a company's stock rather than a fraction of one share of a company's stock," the Bespoke note added. Fractional shares allow investors to own a slice of an individual stock and have recently become very popular.
The split may also give Alphabet a chance at entrance to the Dow Jones Industrial Average.
Of the five mega-cap tech stocks Apple, Microsoft, Amazon, Alphabet and Meta (formerly Facebook), only Apple and Microsoft are in the Dow. Adding Google to the Dow at its current levels would overwhelm the Dow because it is price-weighted. But the the stock split could allow Alphabet to join the Dow, too, Brian Fitzgerald, senior equity research analyst in the technology and services group at Wells Fargo Securities, told Money via email.
Should you buy Google stock?
Google parent Alphabet's stock split will not affect the value of the stock an investor holds. But if you wanted to buy even a single share of Google but found it too expensive, that will be much easier to afford after the stock splits.
Alphabet is a good buy, says Ali Mogharabi, senior equity analyst at Morningstar. His value estimate for the company per share is $3,600 after a 4% increase following the company's earnings report on Tuesday.
Google is seeing growth in its search advertising and Google cloud, as well as further monetization of YouTube, Mogharabi added.
For what it's worth, Tesla and Apple both saw their share prices surge following their stock splits.