Alphabet, the parent company of Google, announced a 20-for-1 stock split along with its quarterly earnings report (pdf) on Feb. 1. It’s only the second split for the stock since it went public in 2004; a 2-for-1 split in 2014 created the company’s Class C shares in the process. But the new split is especially conspicuous because of the eye-popping split ratio.
Issuing investors 19 additional shares for every share held would, based on today’s closing price, lower Alphabet’s stock price from $2,700 per share to less than $150. The shares rose more than 8% on the news on Feb. 2 when they approached $3,000.
The 20-for-1 split outdoes recent stock splits from Apple and Tesla, which split 4-for-1 and 5-for-1 respectively on the same day in August 2020. The graphics chip maker Nvidia, another tech stock popular with retail investors, split 4-for-1 in July 2021.
What is the purpose of a stock split?
Stock splits lower the price of a stock—in Alphabet’s case to one-twentieth of its price—possibly making it more attractive to retail investors.
Since the start of the covid-19 pandemic, Wall Street has seen a massive influx of retail traders. At the same time, tech stocks like Alphabet, Apple, Tesla, and Nvidia have all risen precipitously, fueled by low interest rates and high demand for their products. Alphabet shares have doubled in price since March 2020.
Massive stock-split ratios like Alphabet’s are rare but not unprecedented. In 1957, Getty Oil planned a 20-for-1 stock split. More recently, Amalgamated Bank did a 20-for-1 split in 2018, and the adtech firm The Trade Desk executed a 10-for-1 split in June 2021.