Most companies use stock splits as a way to bring their per-share price down to more manageable levels, which many believe encourages greater liquidity and accessibility to small investors. Yet for tech giant Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), the company's sole stock split during its history was done for a very different reason: creating a new class of non-voting shares that became a model for peers both in the information technology sector and beyond.
Now, as Alphabet's stock price approaches the $1,000-per-share mark, some investors wonder if the parent company of Google will ever do another split. With many companies simply allowing their shares to continue rising, it's entirely possible that shareholders might not get the chance to see another Alphabet stock split going forward.
How Alphabet did its only split
Since the company formerly known as Google went public in 2004, it has done only one stock split. That came in 2014, when the company moved forward with what might have seemed like a simple 2-for-1 split.
However, the mechanics of the split were anything but simple. Instead of using its existing share class and simply issuing more shares, Alphabet issued new non-voting stock in the form of newly created Class C shares. As a result, each shareholder got one Class C non-voting share for every Class A voting share they owned prior to the split. Company executives and other inside investors who owned Class B shares with voting preferences also receive a Class C share for every share they owned.
At the time, the move was extremely controversial. Shareholders filed a class action lawsuit, arguing that the split was a thinly veiled effort by top executives to allow them to sell off a portion of their economic interest in Alphabet while still retaining a commanding majority stake for voting purposes, effectively giving them an unbreakable mandate in determining the strategic direction in which the search engine giant would move. It took a year and a half to settle the lawsuit, but eventually Alphabet won the right to go forward with the deal.
A look at what's happened since the first Alphabet split
When the Alphabet split was first announced in early 2012, the stock traded at around $600 per share. That worked out to a roughly $300-per-share valuation for the two classes of stock, with the Class A voting shares trading at a small premium to the Class B non-voting shares. That small difference has generally persisted, albeit with periods of wider and narrower disparities between the two share prices.
Over the past five years, though, Alphabet has expanded dramatically. The core Google search business still commands the Alphabet corporate umbrella, but other properties like YouTube and Android are also important contributors to the company's success. In addition to those two divisions, which remain under Google's supervision, companies like the Waymo autonomous vehicle division and the Calico healthcare and aging business are directly controlled by Alphabet.
Because of those gains, the stock has once again approached the $1,000 level. That has some thinking that the millennium mark might be a good opportunity for Alphabet to deliver a second stock split.
Why Alphabet isn't splitting anytime soon
However, Alphabet has shown no signs of looking to do a split. A look back at conference calls with analysts and shareholders over the past three years doesn't turn up any discussion of a future split, and one shareholder went so far as to request that Alphabet not do a stock split in order to improve its chances of catching up with Warren Buffett and Berkshire Hathaway, with its six-figure price tag for its Class A shares.
There's certainly precedent for companies choosing not to do stock splits despite having high share prices. You'll find a few stocks that already have topped the $1,000 mark without showing any desire to do a stock split. The ease of trading in single shares rather than 100-share lots has made the price of a particular stock less relevant in terms of liquidity.
Long-time investors in Alphabet have gotten good returns on their investment, and decisions to split or not to split Alphabet stock in the future will have no impact on those returns. What's more important is for Alphabet to keep moving forward, getting the most from Google while growing its other businesses to deliver a diversified stream of profits that can last for years into the future. If Alphabet can do that, then shareholders won't care whether a stock split comes or not.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.