Alphabet's (GOOGL -2.00%) (GOOG -2.12%) highly anticipated stock split is one step closer to reality. At the company's annual meeting on June 1, shareholders approved the measure, setting the stage for its 20-for-1 stock split to take place next month.
If you're an Alphabet investor, no need to Google how the stock split will affect you. Read on for a quick refresher course on the mechanics of stock splits and what it means to you.
Image source: Getty Images.
Pulling back the curtain on stock splits
After being largely ignored for some time, stock splits are having their day in the sun. Amazon, Tesla, and Shopify have all joined the fray this year, pushing stock splits to their highest rate in a decade.
When the company announced its fourth-quarter earnings back in February, Alphabet said that its board of directors had approved the 20-for-1 split, which would be paid in the form of a special stock dividend. This means shareholders would be awarded additional shares of stock.
Alphabet stock surged on the news, with shares climbing nearly 8% -- but the rally was short-lived. As has been the case with many technology stocks, Alphabet shares are underwater over the past year, recently notching a new 52-week low.
The current stock price won't have any impact on the stock split, however. Alphabet shareholders approved the measure this week at the annual shareholder meeting, which paves the way for the next steps. Shareholders on record as of July 1, 2022 will receive 19 additional shares of Alphabet stock for every one share they own after the market close on July 15.
Those owing 10 shares will receive 190 additional shares after the stock split -- and so on. Shareholders won't need to do anything to take part in the split, as it will all be handled by their brokerages.
There will be a commensurate decline in the share price post-split. For each share of Alphabet stock an investor owns -- currently trading near $2,280 -- post-split, they'll own 20 shares worth approximately $114 each. The total value of the investment will be the same immediately following the stock split.
Contrary to popular opinion, there's no economic benefit to stock splits. That said, there are plenty of reasons to be bullish on Alphabet stock.
Search is just the beginning
Alphabet was built on the back of Google's search dominance, as the company controls roughly 92% of the worldwide search market. This, in turn, fuels the company's industry-leading 28% of the global digital advertising market.
Google advertising -- which includes search, YouTube, and Google Network -- generated first-quarter revenue of nearly $55 billion, up 22% year over year. Digital advertising is a cash cow that gives Alphabet the resources to "search" for its next generation of growth. The company's other growth drivers are headlined by Google Cloud, the fastest growing of the "big three" cloud providers -- outpacing Amazon's AWS and Microsoft's Azure.
Then there are Alphabet's "other bets," also referred to as "moonshots." These high-risk, high-reward propositions include Google's self-driving car segment Waymo -- which is widely considered to be among the leaders in the autonomous-driving space -- and healthcare venture Verily Life Sciences, among others. While businesses in this segment are losing money now, they could become significant revenue drivers in years to come. In fact, revenue from other bets doubled year over year in the most recent quarter, suggesting some of these moonshots could be reaching escape velocity.
For all that current and potential growth, Alphabet stock is trading at a significant discount to its historical range. The stock is selling for just 20 times earnings, its cheapest valuation since 2012.
Given its dominant position in search and digital advertising, its fast-growing cloud computing segment, and historically low valuation, Alphabet stock is unquestionably a buy on the eve of its stock split.
