At market close today, Google parent company Alphabet will have completed its second ever stock split. Investors who were shareholders of record by July 1, meaning those who owned shares of Google at market close on July 1, will gain an additional 19 shares — a onetime “share dividend” — for every share they own to complete the 20-for-1 split.
Trading will start at the split-adjusted price Monday, July 18. Buying a share on Monday will be much cheaper than doing so today, but a single share will be a smaller piece of the company at the same time. If the average price of a Google share were $2,000 before a 20-for-1 stock split, the individual share price would be only $100 after.
Google has several different types of shares and two different stock tickers. The split applies to all shares of Google: Class A shares (GOOGL), Class B shares (privately held) and Class C shares (GOOG). Class B and Class C shares have no voting rights within the company, and Class B shares are not publicly traded.
Since the company was first made public in 2004, there has been only one other stock split, in 2014. The latest plan was unveiled at the same time Google released its fourth-quarter revenue report for 2021, which exceeded expectations.
Google is the latest in the wave of big companies splitting their stock. Apple, Amazon, Nvidia and Tesla all have also split their stock since 2020, some for the first time in more than two decades. The next big stock split will be by GameStop, which announced the finalized details for its stock split on July 21. Tesla shareholders will vote on another potential split in August.
Below we review what to expect as a shareholder, what a split means for the future of the company, and where each company is at in its split process.
What’s a stock split?
A stock split is when a company decides to divide its existing shares by a certain ratio to create new shares, which then lowers the individual share cost. You still own the same portion of the company, though stock splits may temporarily increase stock price volatility, or the probability of large swings in the stock price.
Stock splits cause the total share count to increase and the stock price to go down. For example, if one share is worth $600 at the time of 5-for-1 stock split, it would turn that one share into five shares each worth $120. Shareholders retain their full relative investment before and after the split.
For investors, stock splits make shares of the company more accessible as the shares become more numerous and cheaper. For the day trader, stock splits create an environment where cheaper shares lead to higher volumes of options trading, and thus more volatility in the stock price. This creates opportunities for profit if shares can be simultaneously bought and sold in different markets for different prices, a process known as arbitrage.
Why do companies split their stock?
Stock splits happen for a variety of reasons. Often, a company splits stock during times of growth, when it wants to make shares more affordable for retail (or noninstitutional) investors. It also allows employees more flexibility when taking advantage of employee stock-based compensation packages, which some companies, including Tesla, offer.
A company might also consider splitting its stock if it’s aiming to be included in a stock index, which, like the Dow, may have admission requirements that depend on a stock’s price. Companies are concerned about being included on these indexes because that can allow them to raise funds more easily.
What is the process for a stock split?
The actual process for implementing a stock split varies from company to company. Generally, a company will propose a stock split and explain the intent and process to shareholders. In some cases, the company needs to seek approval from shareholders before moving forward with a split. With or without this step, a company’s board of directors or other governing body will later vote on the proposal.
If the proposal passes, the company will work with trading brokerages to decide two important dates: When existing shares will be split and the cutoff day to be a stockholder of record. Stockholders of record on a specific date are the only shareholders who will receive the new shares in the split — this is usually a few days before the official split date.
What are some significant splits in recent years?
- GameStop confirmed a 4-for-1 stock split on July 6. Investors who own shares by market close on July 18 will be issued new shares on July 21.
- Google’s parent company Alphabet announced a 20-for-1 split on February 1. Investors will receive their additional shares on July 15.
- Amazon announced a 20-for-1 stock split and $10 billion stock buyback plan on March 9. Investors who owned shares at the close of trading May 27 had their stock split on June 6.
- Tesla proposed a stock split on March 28, later confirming intentions for a 3-for-1 split. The shareholders will vote on the plan on Aug. 4. This would be Tesla’s second stock split in recent years, after its 5-for-1 split in August 2020.
- Nvidia had a 4-for-1 stock split on July 20, 2021.
- Apple had a 4-for-1 stock split in August 2020. It was the fifth time in the company’s history since going public.
What do stock splits mean for current and future investors?
In theory, investors shouldn’t gain or lose any share value due to a stock split. But in reality, this doesn’t always happen.
Stocks that split gained an average of 25% over the following 12 months, compared to a 9% gain in a non-split, benchmark index, according to Bank of America research reported by Reuters. This additional 16% may be attributable to organic growth, as companies that split their stock generally do so based on likely future financial success.
Stock splits also open up the market for newer investors to buy shares at a lower price. Investors who might have previously been priced out of popular industries or companies may have the opportunity to invest after a stock split.