Alphabet Surges 7% After Blowout Earnings, Here’s What The 20:1 Stock Split Means For Investors

Topline

Shares of Google-parent Alphabet surged over 7% on Tuesday after the company reported stellar fourth quarter earnings and announced a 20:1 stock split, following in the footsteps of tech giants like Tesla and Apple which saw their stocks surge following similar announcements.

Key Facts

Alphabet’s stock jumped over 7% and turned positive for the year after reporting better-than-expected earnings, with quarterly revenue of $75.3 billion up 32% from 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 any company—with intentions to split all three share classes of its stock.

Shares of the tech giant have shot up in recent months—they currently trade at over $2,750 per share, roughly doubling their value since mid-2020.

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

Conventional wisdom on Wall Street says that stock splits don’t do much: Beyond getting 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 announced stock splits in recent years saw huge share price gains in the following weeks that drove up each company’s market value—a sign that this latest split could well boost Alphabet’s value in similar fashion.

Surprising Fact:

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

What To Watch For:

If the stock split were to happen based on Tuesday’s closing price of around $2572.88 per share, the cost of each share would fall to $128.64. In that case, every shareholder would get 19 additional shares for each one they currently own.

Key Background:

Alphabet was last year’s top-performing Big Tech company, with shares jumping 65% in 2021—easily outperforming the S&P 500’s 27% gain. The company has continued to fire on all cylinders, shaking off investor concerns about the ongoing impacts of the pandemic and supply chain issues. Alphabet reported full-year revenue of $257.6 billion in 2021, a notable jump from $182.5 billion in 2020. The company’s latest earnings show growth in several segments beyond traditional advertising revenue, including Google’s cloud business and YouTube.

Further Reading:

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

Stocks Just Had Their Worst Month Since March 2020: January’s Wild Ride In 8 Numbers (Forbes)