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Google Stock Split (2022): Everything You Need to Know About the 20-for-1 GOOGL Split

What’s a stock split? Splitting stock is the process of adding new shares by applying a certain ratio to the existing number of shares held, effectively dividing them into smaller denominations. This results in

  • ? Increase in the total number of shares
  • ? Decrease in per-share value

The total market value of the shares remains the same both pre-split and immediately after post-split. Therefore, shareholders do not lose value on their investment during a stock split. Rather, stock splits simply increase the number of shares held by existing shareholders while making new shares more accessible to outside capital. 

The numerator (total market value of shares) remains the same while the denominator (total number of shares) is increased. The result is a dilution in per-share market value. So, if an investor holds 100 shares with a quoted market value of $50 each and the company announces a stock split of 2:1, the investor will now have 200 shares with a value of $25 each.

Google Stock Split: July 2022

In July 2022, a stock split of 20:1 was completed for Google Inc. which was announced earlier in February this year. This Google stock split was managed by Alphabet Inc. which is the conglomerate holding company of Google.

Google has three classes of shares but the stock split was for class A (GOOGL) ordinary shares. Voting rights are associated with class A while, not for class C shares. Class B shares are not traded and are owned by the company’s founders.

But what are the reasons for the Google stock split? Why did the company opt for it and what consequences might it have on the market in general and a shareholder in particular?

Impact on stock price

Theoretically, companies witness growth in share price after a split because now shares are affordable to more investors. Companies expect that the demand for their shares will soar as a greater number of people would compete to buy them.

It is a simple supply-demand concept where price reduction due to the split will increase its demand. On the flip side, too many shares may bring down the price as well.

Unfortunately, for the Google stock split, a decline of nearly 17% in share price was witnessed. This decline in share price from the announcement date to the distribution date is evident from the graph below:

Source: Bloomberg

 

Liquidity

You must have heard the cliched advice of not putting all your eggs in a single basket when it comes to stock investment. To follow this, you need to spread out your investment to multiple companies.

Google shares are one of the most sought-after shares with a trading price of nearly $2,200 before the split. This makes it impossible for a small investor to buy a decent number of shares.

The split of 20:1 resulted in a massive drop of per share market value from $2,200 to around $110. Google stock split makes it convenient not only in purchasing shares but also in maintaining liquidity with the ability to dispose of off small quantity of shares when needed.

Dow Jones 30

Dow Jones Industrial Average (DJIA) is a unique stock market index that lists only 30 top-notch stocks. Unlike NASDAQ and S&P 500, the Dow index restricts the free inclusion of companies.

Including Google stock in Dow with a pre-split price of around $2,200 would mean an imbalanced index. Now, with the lower stock price after the Google stock split, it is probable that a revamp in near future would make its way to the Dow 30 index.

Trends in the market

The 20:1 Google stock split follows the trend in the stock market taken by other prominent players. This year companies with the likes of Tesla, Amazon, and Shopify performed stock split.

In today’s world where customers have a short attention span, reminding them of your existence is crucial. Google stock split grabbed media attention and remained the top news for several days. Analysts are still analyzing its impact days after the split which means Google is getting the much-needed marketing and publicity in the financial industry.

Employee stock option

Google has an employee stock option scheme that is offered as a compensation benefit under the name google stock unit (GSU). With such schemes, employees can become the owners of the shares if they spend some given time with the company.

Google stock split will give its employees flexibility as they can buy and sell shares that are vested to them in smaller proportions.

Administrative impact

If you are an individual owning a google stock, the Google stock split is not creating any administrative burden. The new shares will be credited to your account automatically.

The newly issued shares added to your account will not create a tax liability as there are no additional earnings. Google stock split is different from a stock dividend which attracts taxation as it has increased your income.

Major Stock Splits This Year

Let’s compare the Google stock split with another equally significant split for Amazon which occurred in the current year. Take a look at the analytics below:

Announcement date refers to the date split news is made public. Ex split date is the first-day trading that occurs after new stocks are added to each account. Share prices for both dates are also shown. The current price refers to the price on 1 August 2022.

It’s clear from the above analysis that both share prices saw a decline after the announcement of the stock split till it became effective. Amazon shares saw a decline of $22.03 representing 15% in percentage terms while GOOG shares saw a dip of $23.3 showing a drop of 17%.

However, post-split we have seen an improvement in prices for both stocks. Amazon has seen an increase of nearly $10 (in about two months) while Google has maintained its price.

Note: Both companies announced a 20:1 share split but notice that the difference in days between the announcement and ex split date was 88 days for Amazon and 170 days for Google. So, keep this point in mind while basing this analysis on any future sell-purchase decision.

Get Up-to-the-Minute Market Updates on Major Stocks

It is crucial to understand the basic concepts and get some idea of technical trading processes to take timely decisions.

Stock market changes are mostly dynamic and prudent investors must have the foundational knowledge of how stock trading works. We have a concise yet comprehensive guide for educating traders which can be accessed here. It starts with simple concepts and swiftly shifts towards the difficult nitty gritty of the trading. 

Also, going through a trading newsletter can quickly fill you in on the latest developments in markets. But how do you choose the appropriate newsletter among the hundreds floating around on the web? Reading our review of top stock trading newsletters will help you cut through the noise to find the best, value-added monthly and weekly stock trading publications written by verified insiders.