Key Takeaways
  • On July 18, 2022, Alphabet (GOOGL) executed a 20-for-1 stock split, meaning investors who previously held one Class A share of GOOGL would now receive an additional 19 shares. 
  • A stock split is a course of action a company pursues to try and reduce the stock price by issuing more shares. 
  • As this stock split has reduced Google’s stock price, more investors can now invest in the tech giant.
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On July 18, 2022, Alphabet (GOOGL) executed a 20-for-1 stock split, meaning investors who previously held one Class A share of GOOGL would now receive an additional 19 shares. Although this event has led to the stock price being more affordable for investors, there may be another reason behind Google’s intentions. 


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Stock Split Definition

 

At some point during a company’s tenure, there will come a time where their share price is too high, making it difficult for the every day investor to invest in their company. When it gets to this point, investors are faced with the option of either investing a larger portion of their portfolio value into the company, taking on more risk, or settling for purchasing a fractional share instead.


As a result, these series of events typically lead to the company making an announcement informing the public and their investors a stock split will occur. A stock split is when a company increases the number of shares traded on the market in exchange for making the price cheaper. For example, if a company’s share price is trading at $1,000, the corporation may initiate a 20-for-1 stock split, meaning the real time stock price is divided by 20, making the new share price $50 ($1000/20 = $50).


As time goes on, the company will disclose the dates of which the stock split will occur, so investors are aware of when this new change will be put into effect. 

 

Possible Reasoning Behind Alphabet’s Stock Split


As Google is one of the world's most popular, well-known companies, there are two main possible reasons why Alphabet split its stock. 


Possibility of Being Added to the Dow Jones


One reason why Alphabet shares were split was the possibility of being added to the Dow Jones Industrial Index. The Dow Jones Industrial Index is a stock market index that contains 30 companies that are listed on U.S. stock exchanges. Currently, Google’s stock is not listed on the Dow Jones Index, but Alphabet is hoping its recent stock split will allow them to enter this prestigious index.

 

Dow Jones

Image Credit: Venturelli Luca / Shutterstock.com

 

The reason why high-priced stocks such as Amazon and Google are not included in this index is because of how the Dow Jones is calculated. Dow Jones uses a price-weighted index, meaning that changes in stock prices fluctuate the value of the index. Consequently, those stocks with higher prices, subject to elevated variations, will skew the index's price. 

 

As Google’s stock price was in the thousands prior to its split, this integration would have most likely meant the value of Dow Jones would become heavily reliant on Google’s performance; which is why it was never added to the Dow Jones index. 


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Although this claim has not been verified, some investors and market experts are speculating that Alphabet decided to initiate a stock split in hopes of finally being added to this index, potentially resulting in an increased stock price.


Main Benefit of Google’s Stock Split


Cheaper Stock Price

 

Before the split date, the stock price was $2,235.55 at market close on July 18, 2022. As the stock price is much higher than what the average investor can afford, Alphabet made the executive decision to conduct a stock split. 

 

investors looking at monitor

Image Credit: Joyseulay / Shutterstock.com

 

After the stock split, the new split-adjusted price is $114.27 as of July 21, 2022. This lower stock price makes the shares affordable to more investors and allows them to invest in their company.  

 

The Money Wrap-Up

 

As mentioned earlier, Alphabet, or Google, is one of the most well known companies in the world. As they have a market capitalization of $1.48 trillion, they are also one of the richest companies in the world. Therefore, since they are one of the best performing companes historocially, many investors will most likely be looking at investing in Google in the coming years since its price has dropped. 

 

Disclaimer: The information above regarding Alphabet, Google, and their stock split is NOT financial advice. Invest at your own risk, and CapWay is not responsible for any losses incurred on investments. 


Main Image Credit: achinthamb / Shutterstock.com

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