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After Blockbuster Q4 Earnings, Alphabet Heads for Stock Split

Plus500 | Wednesday 02 February 2022

Alphabet (GOOG) made an announcement on Tuesday that may come as welcome to lay traders. This coming summer, the tech giant will split its shares, which could lead to holding stock in Google’s parent company becoming more affordable.


Success Spikes Shares

Alphabet has been on a winning streak lately. Its Q4 2021 earnings release yesterday beat analyst predictions, with revenue growth compared to the fourth quarter of 2020 reaching higher than 30%. Alphabet’s been a big winner even among Big Tech companies, with a share price increase for the year outpacing that of industry peers like Apple (AAPL) or Amazon at 65%. 

The firm’s been especially successful in expanding its advertising revenue and cloud services branches, and even hit a sales record for its proprietary Pixel phones last quarter. In a time of generalized economic turmoil across the globe, Alphabet’s remained immune from the negative effects of the COVID-19 pandemic, with total revenue in 2021 rising 41% to over a quarter-trillion USD.

However, it seems that Alphabet’s executive suite has cottoned on to one less desirable effect of the firm’s impressive growth: a prohibitively high stock price. The company’s shares closed up by 1.5% yesterday following the Q4 earnings report, reaching nearly $2,800. However, Alphabet’s Chief Financial Officer Ruth Porat made an announcement on Tuesday’s earnings call that may break this upward trend’s back.

Widening Audience

Yesterday, Porat announced that this coming July, Alphabet will split its stock. This move is only the second of its kind for the tech giant in the eighteen years it’s been publicly traded. Alphabet will offer a special dividend to its shareholders, whereby those holding stock as of July 1st will receive nineteen additional company shares for each one they already hold. This move, according to some industry experts, is intended to draw a more diverse array of traders to buy into Alphabet’s stock, as the firm’s individual share price is expected to decline sharply once the stock split is completed on July 15th even as its market capitalisation continues to grow.

Alphabet has instituted this type of change for its shareholders once before, in 2014, after its stock price reached four digits. However, according to some, this previous split was intended to create a new class of shares that wouldn’t afford their holders voting rights with the firm. Furthermore, stockholders in 2014 only received one additional share, compared to the nineteen they’re expected to get in July. According to CFO Porat, the primary goal of this year’s change is to make buying Alphabet stock more accessible to retail traders.

Headed for the Dow?

This move is far from unprecedented among Big Tech firms. Since 2007, Apple has conducted stock splits several times in order to stay listed on the Dow Jones Industrial Index (USA 30), which requires a relatively low share price. 

Currently, among tech giants, only Amazon and Alphabet have four-digit share prices. Now that the latter is set for a drop in price within a few months, Amazon (AMZN) could be left alone in this category. This may mean that in a potential future reshuffle of the thirty blue-chip stocks included in the Dow, Alphabet could be considered for membership. 

Clearly, Alphabet has racked up a long string of successes over the past year on its path toward a possible $2 trillion market capitalisation. With the firm’s coming stock split, Alphabet’s share price could become more enticing to retail traders, but will they buy into Alphabet’s continued success?

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