Alphabet rises 7% after profit explosion, here’s what the 20:1 stock split means for investors

Topline

Shares of Alphabet, Google’s parent company, jumped more than 7% on Tuesday after the company reported stellar fourth-quarter results and announced a 20:1 stock split, following in the footsteps of tech giants. technology like Tesla and Apple which saw their shares rise following similar announcements.

Highlights

Alphabet shares jumped more than 7% and turned positive for the year after reporting better-than-expected earnings, with quarterly revenue of $75.3 billion, up 32% from compared to a year ago, as the company continues to outperform.

As part of its earnings announcement, Alphabet announced a 20:1 stock split – one of the largest of its kind ever announced by a company – with the intention of splitting the three classes of shares of his actions.

Shares of the tech giant have soared in recent months – they are currently trading at over $2,750 per share, roughly doubling their value since mid-2020.

If Alphabet’s stock split, which was announced by its board of directors, wins shareholder approval in July later this year, it will make shares of the giant Big Tech much more accessible to ordinary investors.

Conventional wisdom on Wall Street says that stock splits don’t do much: beyond each investor receiving more shares, the value of those holdings, not to mention the value of the company, remains largely unchanged.

But mega-cap companies like Apple and Tesla, which have announced stock splits in recent years, saw huge stock price gains in the following weeks, driving up the market value of each. company, a sign that this latest split may well boost Alphabet’s value in the same way.

Surprising fact:

Apple gained more than $500 billion in value in just one month after the company announced a 4:1 stock split in July 2020, for example, while Tesla shares gained more than 70% in the 20 days between the announcement and the execution of its 5:1 stock split in August 2020.

To monitor :

If the stock split were to take place based on Tuesday’s closing price of approximately $2,572.88 per share, the cost of each share would drop to $128.64. In this case, each shareholder would get 19 additional shares for each one he currently owns.

Key context:

Alphabet was the best performing Big Tech company last year, with shares jumping 65% in 2021, easily outpacing the S&P 500’s 27% gain. investors regarding the ongoing impacts of the pandemic and supply chain issues. Alphabet posted annual revenue of $257.6 billion in 2021, a notable jump from $182.5 billion in 2020. The company’s latest revenue shows growth in multiple segments beyond traditional ad revenue, including cloud businesses from Google and YouTube.

Further reading:

The Stock Split Anomaly: How Apple and Tesla Created Powerful Alpha Last Month (Forbes)

Stocks just had their worst month since March 2020: January’s wild ride into 8 figures (Forbes)

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