To The Moon

Google-parent Alphabet announced a 20-for-one stock split on 1 February 2022 for the company's Class A (GOOGL), Class B and Class C (GOOG) stock. The split was approved by shareholders at the 2022 Annual Meeting of Stockholders on 1 June. Shareholders on record close on 1 July will be entitled to receive an additional 19 shares for each stock they owned after 15 July close.

What is a stock split?

A stock split is a corporate action in which a company issues additional stock to its shareholders at a predetermined ratio.

“Think about it like a chocolate bar. Your one big chocolate bar is broken down into multiple bite-size pieces. You still have the same amount of chocolate, just in smaller pieces,” explained research firm Morningstar in a blog post.

Why is Alphabet conducting a share split?

Companies carry out stock splits with the intent of making their stock prices more attractive to retail investors.

Big Tech companies, including Apple (AAPL), Tesla (TSLA), Nvidia (NVDA) and Amazon (AMZN), have announced stock splits of their own recently, having seen their share prices soar.

After the stock split, Alphabet could trade at between $100 - $135 approximately, based on current prices, as GOOGL stocks get split at the ratio of 20-for-one.

“In most cases, stock splits are undertaken by companies when the share price has gone up significantly, particularly in relation to a company's stock market peers. If the share price becomes more affordable for smaller investors, it can reasonably be assumed that more investors will participate, and so the overall liquidity of the stock would increase as well” added Morningstar.

Shares trading at a lower level after the split price could help Alphabet build its case for inclusion on the Dow Jones Industrial Average index (US30)

Despite being among the biggest companies in the US by market capitalisation, Alphabet and Amazon are not members of the Dow Jones Industrial Average. One of the reasons for this could be their high share prices.

The Dow Jones Industrial Average index is a price-weighted index, which means that a constituent company's share price will determine its weighting in the index.

“Since the indexes are price weighted, the Index Committee evaluates stock price when considering a company for inclusion. The Index Committee monitors whether the highest-priced stock in the index has a price more than 10 times that of the lowest,” says Dow Jones Averages Methodology.

Being added to one of the most followed stock market indices could attract capital into Alphabet via exchange-traded funds (ETFs) that track the performance of the Dow Jones Industrial Average index.

Overall, I am thrilled with the approval of the stock split.

As a disclaimer, I do own shares of Google. Leave your comments below to share your views.