This article is to help you understand the new development in Google stock market. If you own or you are interested in GOOGL and GOOG stocks this article will help you make a good investment decision.
Alphabet Inc. is set to bring a big and historical stock splits back to the market. This means that prospective investors would not need plenty dollars of $50,000 to own some unit of stock in the Company. This sounds very great.
Ruth Porat, Alphabet’s chief financial officer said the reason for the split is it makes Company’s shares more accessible.
If the split is done this year as planned it will facilitate the making of America’s third-biggest company hitting the most venerated stock average in history.
The company reported on February 22, 2022 that it will increase its outstanding shares by a 20-to-1 ratio, aiming to induce the many small investors who have flocked to the stock market during the global pandemic.
Watching the chart, you will notice that the shares jumped over 10% in U.S. premarket trading few days ago, and were set to surpass their record high reached last November. We understand that low stock price makes it easier to buy shares rather than purchase fractional stocks through their brokerage firms.
Alphabet’s 20-for-1 split would reduce the price of Class A shares to roughly $138 on February 22, based on the closing price of $2,752.88 which means so much to analysts because the share of the company has not been that cheap since 2005.
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The split will cover all three classes of Alphabet stock. If the split happens today, February 22, Class A and Class C shares would trade at roughly $137 respectively, down from about $2,750 as of Tuesday’s close.
What Is a Stock Split?
A stock split is when a company has decided to divide its shares by a certain parameter informed by market factors which may be in 2-to-1.
This results in more shares than hitherto existed before the split. So, if a stock splits 2-for-1, it simply means you now have double the number of shares in existence than before the split.
If the company had 20 million stock and splits the stock in 2-to-1, there are now 40 million shares of that stock. This is quite huge.
Google has proposed a split deal that will follow 20-to-1. This simply means that once the split is done there will be 20 times the amount of GOOG shares available than what’s available today.
Consequently, the owners of Google’s stock before the 20-to-1 split will have 20 times the number of shares in his kit before the split. For instance, if Mr. A owns 500 shares of stock of GOOG today, after the stock splits 20-to-1, Mr. A will own 10,000 shares of GOOG. This is how it works.
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Splitting a stock decreases the value of a single share of stock and this would make it easier for investors with small dollars to purchase the stock. This may not be good for some companies as they do not want to make their stock easy to buy, thereby eliminating low capital investors.
Of course, companies split stocks when the goings are right and business flourishing with the unit stock price price heading to the sky, but an unnecessarily aggressive split may lead to fundamental risk of crashing price.
Why A Stock Split?
The main advantage of a stock split is to make a company’s shares cheaper for small investors to buy. Many companies have split their stock periodically throughout their history in order to maintain the necessary stock price.
The stock-split implication is wider to the extent that derivatives investments such as options trading will become cheaper as well after a stock split.
We are told that stock split does not have any effect on the overall value of your investment. This is correct only in theory. In reality, the conditions surrounding the split can certainly move a stock higher or lower.
For instance, when a company decides to split its stock in order to make shares more affordable, it can have a positive effect. This opens the stock to low capital investors and the entire investing public thereby exerting pressure on demand that pushes the stock upward.
Does a Stock Split Affect the Stock?
A stock split is often a sign that a company is booming and also shows that its stock price has moving upward.
This is positive signs but it also means the stock has become less affordable for investors and has the potential to eliminating the low capital investors.
As a result, companies may do a stock split to make the stock more affordable and alluring to individual investors. It is desirable in both short-term and long-term in so far as the surrounding market conditions support a split decision.
Alphabet Inc. has announced a 20-to-1 split to be implemented in July this year. The 20-for-1 split would cut down the price of Class A shares to roughly $138 and it will now be sold at $138 instead of at $2,752.88. Alphabet’s stock has not been that cheap since 2005.
The split means that in July, Google stock-holder will get 19 additional stocks for each stock already owned. Clearly, new investors can buy a share of stock at lower price.
Stock market history shows that the following stocks have undergone splitting exercise.
(NASDAQ: NVDA) announced a 4-for-1 stock split in mid-2021, with an effective date of July 20, 2021.
(NASDAQ: TSLA) announced a 5-for-1 stock split along with its second-quarter 2020 earnings report, with an effective date of Aug. 31, 2020.
The Trade Desk
(NASDAQ: TTD) announced a 10-for-1 stock split in 2021 after years of stellar stock performance, with an effective date of June 17, 2021.
Would Google Split Make the Stock Go up?
The answer is NO. The side effect of a stock split venture is that those new shares are generally worthless. This means that the post stock split shares are cheap to buy but not of good value to the holder.
If a stock splits 2-for-1, the value of the shares is now half of what they were before the split. As the GOOG stock get set to split 20-to-1, each share will be worth 20 times less than it was before.
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.
Is Splitting of Google Stock Necessary?
Ruth Porat, Alphabet’s chief financial officer, said via Bloomberg interview
That the reason for the split is it makes our shares more accessible.
What that means is the split makes GOOG stock more accessible for retail investors or what we call low capital investors.
As at today, GOOG stock is hovering around $2,900 per share which makes the buying of just one share very tasking for the average investors in view of the prevailing global economic reality.
We are sure that after the split in July and if GOOGLE stock is to still be $2,900 per unit stock, then a share of GOOG stock would only cost $145 per; thereby making the stock much affordable for investors. Of course, you are having at your hand 20 times the number of your old GOOG stock after the split.
In a nutshell, Google stockholders will receive a special one-time dividend of 19 shares for each of its Google holdings following the split, which is planned to take effect in July 15, 2022.
We believe that the stock split proposal by Alphabet Inc. is necessary in view of the growing price of the stock with noticeable limited demand for the stock.