Alphabet Inc. will bring big stock splits back into the market so potential buyers won’t have to spend more than $3,000 to purchase a share. The Google parent is able to lower the price and make America’s third-largest company into its most revered stock average.
The company announced late Tuesday that it would increase its outstanding shares by 20 to 1, in an attempt to attract small investors who have been flocking to the stock exchange during the pandemic. Premarket trading in the United States saw the shares rise 10% and surpass last November’s record.
“The reason we have split our shares is that it makes them more accessible,” Ruth Porat (Alphabet’s chief financial officers) said during a conference call with television journalists. “We felt it was a good idea to do.”
A lower stock price means that it is easier for mom-and-pop investors to purchase shares than fractional stocks through brokerage firms. Alphabet’s 20 for 1 split would bring the price of Class A shares down to $138, based upon Tuesday’s closing price at $2,752.88. Since 2005, a share of the company isn’t that expensive.
Ed Clissold of Ned Davis Research, chief U.S. strategist, stated that institutional investors can buy any size shares and that the price per share does not matter. A lower price per share makes it easier to purchase a reasonable amount of shares for a smaller investor.
After the announcement of the stock split and the record-breaking fourth quarter numbers, shares surged at the opening. Google-owner’s profit and sales topped analyst projections for holiday quarter. This shows the resilience of its advertising business despite major economic downturns as the pandemic continues.
Another reason for the split could also be to gain entry to the Dow Jones Industrial Average. This index, which is price-weighted, has been a barrier to Alphabet and Amazon.com Inc. for years. has a stock price of four figures according to Michael O’Rourke chief market strategist at Jonestrading.
The Dow’s archaic weighting system for the Dow is based on share prices rather than market capitalization. In Alphabet’s presplit form, it was too large to add to the gauge without overwhelming all other members.
Recent share splits in U.S. stock exchanges are almost non-existent. There have been only two splits in 2019, compared to 47 splits in S&P 500 between 2006 and 2007. But Apple Inc. and Amazon has not split its stock since 1999, when it did three times.
Dow Entry
Another reason for the split could also be to gain entry to the Dow Jones Industrial Average. This index, which is price-weighted, has been a barrier to Alphabet and Amazon.com Inc. for years. has a stock price of four figures according to Michael O’Rourke chief market strategist at Jonestrading.
The Dow’s archaic weighting system for the Dow is based on share prices rather than market capitalization. In Alphabet’s presplit form, it was too large to add to the gauge without overwhelming all other members.
