A 1-into-20 stock split has the potential to open the floodgate to ‘buy to hold’ retail investors.
The new entry price per share will be lowered to around US$150 from US$3,000, based on Wednesday’s price.
What’s happened
Alphabet, the parent umbrella company above Google, after Tuesday’s close in the United States released a bumper set of financial results which included forecast-beating earnings and revenue for the fourth quarter.
A 32% in ad-revenue growth was at the heart of the strong performance with group revenue reaching some US$75.33bn – some US$61.24bn came from Google’s ads division, whilst Youtube chipped in with US$8.63bn, shy of a US$8.87bn forecast, and Google’s cloud services added US$5.4bn.
At the same time, Alphabet proposed a 1-into-20 stock split (across each of its three series of shares) that will significantly increase the number of shares in issue and bring down the face value of each share.
In doing so the Google owner is following similar moves by Apple (which went 1-into-4) and Tesla (1-into-5) back in August 2020.
It matters because …
Being priced in the vicinity of US$150 per share will make Alphabet stock much more accessible to smaller holder and retail investors that now flood interest into certain stocks and asset classes through popular trading apps like Robinhood and E-Trade.
The world’s most ubiquitous company is plainly in rude financial health and continues to grow revenues at a substantial rate.
Google enjoys a dominant market position and continues to grow even at its already gargantuan size.
An awful lot is, of course, already priced into the stock nevertheless the stock is also kind of boring – mostly meandering regardless of business performance, the stock was basically flat through 2021.
It even threatens to make the Dow Jones Industrial Average interesting, as post-split Google could qualify for a spot in the index and likely elbowing IBM out of the trap door. There’s speculation Amazon may follow suit, which would have the potential to leapfrog the Jeff Bezos owned retail into the Dow at the expense of Intel.
Albeit the weighting intricacies of the benchmark may yet complicate matters.
Market reaction
Together the results and the stock split proposal were well received by investors, with Alphabet stock rising just over 10% in out-of-hours dealing to change hands at US$3,030.
“It’s important not to beat around the bush where Alphabet is concerned. The scale of its combined advertising businesses cannot be overstated,” said Sophie Lund-Yates, analyst at UK stockbroker Hargreaves Lansdown.
“If you own a business in today’s world, chances are you will need to pay to get that marketing material in front of Google or YouTube’s users. Positive consumer behaviour has fed into an incredible performance, and the market is rewarding Alphabet in response.”
The analyst meanwhile said the stock split was not only an indication of confidence but will also mark a more affordable entry point for investors.