By Runisan Natheeswaran, Staff Writer
On February 1, 2022, Alphabet Inc. reported fourth-quarter earnings after market close, warranting a 7.5% rise in their stock price the following day. The stock still ended the week off with a 2.5% gain, despite the Facebook-led tech sell-off.
Alphabet reported better than expected fourth-quarter earnings and announced a 20-1 stock split that will take place in July. The company reported revenue growth of 32%, with better-than-expected results in their search engine advertising revenue, earnings per share (EPS), and Google Cloud revenue. Google’s chief business, Philipp Schindler, attributed their success to retail, as it was their largest contributor to year-over-year growth.
Throughout the years, Alphabet has continued to show resilience in the face of adversity, as it has continued to deliver and weather through the various challenges from the pandemic. These results follow the continuing trend of outperformance in the market, as shares of Alphabet surged 65% last year.
In addition to the report, the company announced a 20-for-1 stock split, making it the second split for the stock since it first went public back in 2004. This would mean that investors would receive 19 additional shares for every share held, and based on Alphabet’s current stock price, the split would lower the stock price from $2,700 per share to less than $150 per share. Investors previously believed that a stock split was nowhere in Alphabet’s long-term plans, so what changed the company’s mind?
Since the start of the COVID-19 pandemic, there has been a substantial rise in the number of retail traders and investors in the market. However, many prospective buyers shy away from large share prices. Ruth Porat, Alphabet’s chief financial officer said that “the reason for the split is it makes our shares more accessible…we thought it made sense to do.” Many other megacap stocks have undertaken stock splits since the start of the pandemic, including Tesla (TSLA), Nvidia (NVDA), and Apple (AAPL).
Alphabet’s stock split might also make it more attractive to retail investors. Ed Clissold, Chief U.S strategist at Ned Davis Research stated that “Institutional investors can buy in size and the price per share doesn’t matter…but for a smaller investor, a lower price-per-share makes it easier for them to buy a reasonable number of shares.”
The effects of retail activity after a stock split can also be seen in other companies. Tesla’s 5-for-1 split announcement in August 2020 spurred retail buying from $30-$40 million per week to over $700 million a few weeks later. In Apple’s 4-for-1 split in July 2020, retail purchasing went from $150 million in Apple stock per week to nearly $1 billion. In addition, both Tesla and Apple shares market value surged following their respective announcements. Will Alphabet’s stock follow this trend?
Wall Street experts believe so, as they believe the blowout earnings report and the stock split announcement will propel the stock for the near future. As analysts adjust their estimates for Alphabet, the most bullish analyst values them at $3,900 per share, while many bearish analysts value it at $2,965 per share. One thing is for certain, Alphabet is heading in the right direction, and investors should pay close attention to this company moving forward.
Photo by Pawel Czerwinski on Unsplash
FINANCIAL MARAUDER 