When Will Google Stock Split in 2017?
Will GOOG Stock Split in 2017?
The older I get, the less certain I am about the future. Chaos is simply too powerful. But there are moments when the future seems obvious, like when Alphabet Inc’s (NASDAQ:GOOG) share price topped $900.00. From that point on, it seemed logical that we would see a GOOG stock split in 2017. Some of you might point out that Alphabet hasn’t disclosed an official Google stock split date in 2017…I am aware of that.
But a split is on the horizon nonetheless. It’s not rocket science, dear readers. It’s just common sense. Let me explain.
Unless you have a portfolio of $100,000 or more, it’s unlikely you can afford GOOG stock at its current price. A handful of shares would eat up your entire portfolio.
That alone should set off alarm bells. An entire class of investors out of reach from one of the best-loved stocks on the market? It’s a disaster in the making. Whether it’s reasonable or not, investors don’t want to pay a premium on a $900.00 stock. It just seems like…too much.
Alphabet’s management team knows this. That’s why a stock split is on the horizon. Alphabet needs to reassure retail investors that the GOOG stock price is affordable, and the best way to do that is by, well, making it affordable.
It really is a matter of self-interest for Alphabet’s upper management. They all have juicy stock options as part of their compensation packages. They want to see those packages get bigger in value, which means driving up the value of Google stock. But Google stock will only go up if buyers are willing to pay a premium.
In other words: Alphabet NEEDS to keep Google stock affordable.
Not that Wall Street cares. Their money is too big for such concerns. To them, there’s no difference between $900.00 and $9.00 per share, because the total sum is the same. Think about it: 1,000 shares of the former and 100,000 shares of the latter both equal $900,000.
And, since Wall Street firms handle millions—if not billions—of dollars, there are no stocks out of their reach. The same cannot be said for average retail investors.
What happens to them? Should they content themselves to a smaller pile of stocks from which to choose? The short answer is no.
It isn’t fair, for one thing. All investors should play on even footing. But it also isn’t smart, because it will end up hurting Wall Street in the long run. (They aren’t the sharpest tools in the shed, if you know what I mean.)
Stocks perform better when all investors have an equal shot at purchasing them.
Why Will Google Split Its Stock? Short Answer: Liquidity
“Liquidity” is just a fancy way of saying it’s easy to sell something.
For instance, money is perfectly “liquid.” Why? Because you can exchange U.S. dollars for any type of asset. Cars, clothes, stocks, bonds. There is basically no obstacle from using money in any of those transactions.
But a piece of heavy machinery, on the other hand, is not very “liquid.” Imagine if you tried selling a tractor. It would take considerably more time and negotiation than getting rid of U.S. dollars. It is, in other words, an “illiquid” asset. Every asset that you can buy falls somewhere on the liquidity spectrum.
But how does this relate to the GOOG stock price? After all, you can always find a willing buyer for Google stock; it’s one of the hottest stocks on the planet.
To put it in a nutshell, I’m worried that the spread between the average “bid” and average “ask” will widen.
Here’s an extreme example:
Let’s say sellers are asking for $905.32. They expect buyers to continue throwing each other under the bus but, for some reason, a whole mass of investors get sticker shock at $905.31. It is simply too pricey for them, so they pick up their skirts and run for the hills.
The remaining buyers decide to take a stand; they put down their feet at $905.28.
What happens next?
Sellers have to make that jump. They will take a bigger hit than expected, and for no other reason than a high stock price. That was the only reason for the standoff.
Imagine if these standoffs continued, with increasing penalties, at $978.54, $992.65, $1,003.21, $1006.14, etc.
At some point, the turbulence would put the fear of God in sellers. They would start dumping shares as if GOOG stock came with an expiry date, and then…kaboom. A massive sell-off.
That’s why stock splits exist: to prevent sell-offs; to keep the stock liquid, mobile, ascendant.
Google stock is clearly entering that territory, which is why I’m predicting a GOOG stock split in 2017. Like I said, it’s not rocket science. Anyone who’s felt discouraged by a $900.00+ price tag on GOOG stock understands plainly enough why it’s necessary.
Google Stock Split History
Alphabet split its stock once before, in March 2014. There were some interesting reasons for that split (more on that below), but first things first. There’s something you should know about stock splits.
Stock splits don’t change the value of anything.
Shocking, I know. But the truth is that stock splits merely multiply the number of shares that belong to existing shareholders. They don’t dilute your ownership stake, or increase it. They don’t add new value, or subtract any. They’re just…neutral.
|
Google Stock Split History |
|
|
Date |
Ratio |
| March 27, 2014 |
2-for-1 |
So, when Google stock split in 2014, there were suddenly twice as many shares. The number of investors stayed the same, as did their percentage of ownership of the company. But there was one small change: the new shares didn’t have voting rights.
And guess who kept their voting rights? Sergey Brin and Larry Page, the co-founders of Google.
Google had created an entire class of new shares. Each of the new shares was equal in ownership, but absolutely worthless at shareholder meetings. Investors lost a massive amount of power within the firm to ensure that Brin and Page could maintain control.
It was a slick move.
Don’t touch the money, because investors will snap your fingers off. But feel free to take away their voice within the company…that won’t matter as long as you deliver solid returns to GOOG stock. Investors care more about profits than about corporate governance.
Brin and Page knew this, which is why they orchestrated the 2014 GOOG stock split. They needed to consolidate power within the firm as it restructured. Remember the shift from Google to Alphabet? That could have been a rocky ride if they hadn’t consolidated power.
In any case, that was the past. To return to the present, I think a Google stock split in 2017 is purely to rebalance the share price. The GOOG stock price is getting to absurd levels.
How Will Stock Split Affect Google Stock Price?
There are two questions here: 1) What is the immediate effect of the stock split?, and 2) Will it send Google stock skyrocketing thereafter?
The answer to the first question is that a stock split will slash the price by whatever ratio is decided upon. I did some quick calculations below (based on the price at the time of writing):
|
Ratio |
Approximate Price |
|
2-for-1 |
$456.00 |
|
3-for-1 |
$304.00 |
|
4-for-1 |
$228.00 |
|
5-for-1 |
$182.00 |
|
6-for-1 |
$152.00 |
| 7-for-1 |
$130.00 |
I did the calculations all the way up to a 7-for-1 split, because those are popular right now. The old standby, 2-for-1, is insufficient for share prices that nearly stretch into four digits. Plus it’s become stylish to perform a grand gesture for the market.
Ever since Apple Inc. (NASDAQ:AAPL) held a 7-for-1 split in 2014, other companies have tried to imitate them. The most notable copycat was Netflix, Inc. (NASDAQ:NFLX), which did its own 7-for-1 stock split in 2015.
As you can see above, a 7-for-1 GOOG stock split in 2017 would leave the share price at roughly $130.00. That’s much more affordable than its current price, and it gives the GOOG stock price an adrenaline shot. Investors get excited over a stock split.
But the answer to the second question is less favorable. A Google stock split in 2017 could spark a rally; no question about that. But, as to whether it can sustain a rally without a corresponding growth in the business? Nope. Sorry, I cannot say that’s a real possibility.
Stock splits are like “Red Bull.” They can give you a quick hit of caffeine but, unless you get some actual rest, you will eventually crash. Likewise, investors need companies to deliver substance over the long haul, or else they pull their money from the stock. A split alone can’t prevent that.
In this particular case, I don’t think there’s any harm in betting on the GOOG stock split in 2017, because Alphabet is such a phenomenal company. Its share price is likely to skyrocket based on solid fundamentals, so the split would only enhance that trend.
