A few folks have asked me how I feel about the “Stock split” at Google and what it means for shareholders. After all, it’s a stock that I like a lot, and that has been in my portfolio for nine years — ever since it got that dip under $200 about six months after the IPO. It’s a great company with a near-monopoly product, it’s hugely profitable, and they focus on innovation and have shown an ability to build new businesses on top of their core competencies.
There’s not a lot to hate, other than perhaps the fact that it has a fair valuation now — it’s no longer cheap, as it was for most of its first decade as a public company. It’s not necessarily expensive either, it’s just got a premium price because it is, quite obviously, a premium company.
But the corporate share structure at Google has always rankled some, with the founders (Larry and Sergey) offering up only Class “A” shares in the IPO and keeping a tight rein on the Class “B” shares which carry ten votes each (Chairman Eric Schmidt also has some B shares, but Larry and Sergey hold more than 80% of them). They still hold those Class “B” shares and will continue to exercise control of the voting rights, but as Google has issued more and more shares to employees as it has grown Larry and Sergey’s voting rights are getting a little bit eroded, even with their super-voting shares (their options grants may not be egregious, but it adds up). There’s some risk that if they used stock for an acquisition or issue a lot more stock options or restricted stock awards to employees, they might someday fall below holding 50% of the vote at their company.
So to fix that, they’re splitting Google stock — but instead of a normal split, they just dividended out a single “C” share for each Google “A” share. The C shares trade as GOOG now, the regular A shares have changed to GOOGL. Google now has about twice as many publicly traded shares, so the stock price dropped roughly in half — just like a normal split.
What’s the difference? Instead of having just one vote, like the A shares, the C shares have no vote.
So, yes, the company effectively just cemented the founders’ control — even if they sell ...