Google stock split: What next for GOOGL shares?
Explore the Google-parent Alphabet's 20-for-1 stock split, understand the reasons behind it, and assess its impact on the company's shares.
Google-parent Alphabet completed a 20-for-one stock split for its Class A (GOOGL), Class B and Class C (GOOG) shares in mid-July 2022.
While investors cheered the stock split news earlier in the year, concerns about macroeconomic headwinds have pushed GOOGL and GOOG shares to a two-year low in early November 2022. Since then, Alphabet shares have partially recovered, trading with a 19% year-to-date gain, as of 5 April 2023.
Alphabet (GOOGL) live share price
In this article we will talk about the Google stock split, latest Alphabet earnings and latest analyst views on Alphabet’s stock outlook.
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. A stock split will result in an increase in the number of shares held by existing shareholders but will see its price reduced by the stock split ratio. The total dollar value of all shares will not change due to a stock split. The research firm Morningstar explained the concept in a blog post:
Common stock split ratios are 2-for-1 or 3-for-1, where a shareholder receives an additional one or two shares for every stock held. The unit price of the stock will fall by a division of two or three, accordingly, after the split takes place.
Stock splits are also referred to as “one-time special stock dividend” in corporate announcements. A company can choose to split its stock multiple times, subject to shareholder approval.
Google share split: 20-for-1
On 15 July 2022, Alphabet conducted a 20-for-1 stock split in the form of a one-time special stock dividend on each Class A, Class B and Class C share. The company’s board of directors previously approved the stock split on 1 February 2022, and its shareholders approved the plan at the 2022 Annual Meeting of Stockholders on 1 June, with the Google stock split date set for 15 July.
The tech giant has stock divided into three classes:
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Class A: GOOGL shares listed in public markets and traded on stock exchanges with regular voting rights.
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Class B: shares held by the company’s founders, with 10 times more voting power than Class A. Not listed in public markets.
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Class C: GOOG shares listed in public markets and traded on stock exchanges, with no voting rights.
Investors cheered the Google stock split news as Alphabet Class A shares surged over 7.5% on the following day.
Why has Alphabet conducted 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 or carried out stock splits of their own in 2022, having seen their share prices soar in the aftermath.
It should be mentioned that the higher share price of company A versus company B does not mean that A is more valuable than B. A company’s market value is usually measured by its market capitalisation, which is calculated by multiplying the total number of outstanding shares by the unit share price.
Stock splits do not directly affect a company’s market capitalisation. However, as investors anticipate increased retail interest after stock splits, a company announcing a stock split could see its share price rise on the news. As explained by Morningstar:
Did a stock split boost Alphabet shares?
Markets tend to react positively to stock split news. GOOGL stock jumped over 7% one day after the announcement of its stock split on 2 February 2022.
As trading began on 18 July, Alphabet class A stock opened at a split-adjusted price of $112.64. Google’s stock price before the split was $2,255.34 as the market closed on 15 July.
Yet on the day of the split and its aftermath, the stock actually moved sideways and failed to pick up since then. Meanwhile, historical analysis of stock splits have shown that share prices of a company typically rise after the announcement of any stock split and fall after its implementation.
Google stock split history
A Google share split has only once taken place prior to 15 July 2022 – before the firm was under its current parent company, Alphabet.
In March 2014, the company enacted a 2-for-1 stock split, although rather than doubling of shares, it issued new Class C shares devoid of voting rights. Consequently, for each class A share held, investors received one Class C share, effectively safeguarding the founders’ voting power. The stock split, initially announced in early 2012, faced opposition from shareholders, culminating in a lawsuit, which was resolved in 2013, clearing the path for the split.
Latest earnings: Alphabet full-year 2022 results
Google parent company Alphabet Inc. has reported its financial results for Q4 and the fiscal year 2022, revealing a moderate growth in revenue but a dip in operating income. The company's Q4 consolidated revenues reached $76bn, a 1% year-over-year increase, while full-year 2022 revenues climbed 10% to $283bn. However, Q4 operating income dropped to $18.16bn, down from $21.88bn in 2021, with the operating margin shrinking from 29% to 24%.
Alphabet CEO Sundar Pichai attributed the company's growth to its long-term investments in artificial intelligence (AI), noting that "AI-driven leaps" in search and other areas are on the horizon. He also cited strong momentum in Google Cloud, YouTube subscriptions, and Pixel devices, with Alphabet's CFO Ruth Porat highlighting ongoing efforts to improve cost structures and support investments in high-growth areas.
Diluted earnings per share (EPS) for Q4 came in at $1.05, down from $1.53 in the same period in 2021. The full-year 2022 EPS was $4.56, lower than 2021's $5.61. Google's advertising revenues for Q4 reached $59.04bn, with Google Search & other, YouTube ads, and Google Network generating $42.6bn, $7.96bn, and $8.47bn, respectively.
In January 2023, Alphabet announced plans to cut approximately 12,000 roles from its workforce, with expected severance and related charges ranging from $1.9bn to $2.3bn. The company also anticipates incurring exit costs of approximately $0.5bn in Q1 2023 due to global office space optimization.
The financial results come amid Alphabet's ongoing endeavours to restructure its cost base and capitalise on the potential of AI across its businesses. As part of these efforts, the company will recategorize DeepMind, previously reported under Other Bets, as part of its corporate costs to reflect increased collaboration with Google Services, Google Cloud, and Other Bets.
GOOGL stock: Analyst views
As of 5 April, the average stock price prediction for Alphabet stood at $131.39, according to the latest data from MarketBeat. The highest projected price target was $165.00, while the lowest estimate came in at $113.00.
Recent analyst ratings for GOOGL stock have been predominantly positive:
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On April 3, Needham & Company LLC reiterated their 'Buy' rating and set a price target of $115, reflecting a 12.29% upside potential on the report date.
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Piper Sandler maintained an 'Outperform' rating on March 31, but slightly lowered their target from $120 to $117, still indicating a 14.01% upside as of the report date.
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Stifel Nicolaus initiated coverage of Alphabet with a 'Buy' rating and a $130 price target on March 20, suggesting a 28.43% upside on the report date.
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BNP Paribas upgraded the stock from 'Neutral' to 'Outperform' on 17 March setting a target of $123, which represented a 22.61% increase on the report date.
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JMP Securities reiterated their 'Market Outperform' rating on 16 March, with a price target of $132, implying a 31.58% upside on the report date.
According to an analyst note from Zacks Investment Research, Google's dominant search market share, expanding cloud footprint, and strengthening presence in the smart home market, such as its Google Nest brand, are positive factors for the company’s future.
Additionally, the acquisition of Fitbit has allowed Google to enter the lucrative healthcare market, and may offer valuable insights to medical professionals. The analysts noted:
Alphabet's 92.2% market share in the global search engine market, its growing presence in the mobile search sector, and its 29 cloud regions and 88 availability zones worldwide were cited as other positives.
However, there were some concerns too. Alphabet's diversification strategy involves significant investment in various sectors, increasing competition, legal hassles, and regulatory scrutiny. As of 5 April, analysts anticipated sales and marketing expenses for Q1 2023 to grow 14.8% year-on-year, and Research and Development (R&D) expenses to grow 17% year-on-year. If fixed costs increase without a corresponding increase in revenue, margins could trend downward.
Other margin pressures included currency fluctuations, international growth, lower-priced YouTube clicks, and the strength of the mobile platform. Additionally, Alphabet's lack of success in building a strong social platform could hinder the company's growth in location-based commerce via mobile devices, Zacks analysts said.
Note that analyst predictions about the future of Alphabet shares may be wrong and should not be used as a substitute to your own research. Make sure to conduct your own due diligence, looking at the latest news, technical and fundamental analysis, and a wide range of commentary.