Remember when Google’s stock surpassed a crazy $1150 per share? In April, that number was split in half. Google’s long-awaited two-for-one stock split, which was announced two years ago, finally happened. This will now seal founders Larry Page and Sergey Brin in the company. Just a week ago, Apple did the same thing, instead they did a 7 for 1 stock split. Just what does this stock split really mean?
For those who don’t know, in a stock split, a company increases the number of outstanding shares while lowering the price accordingly. Instead of having one share being worth $700, you now have 7 shares worth $100 each. Think of it as increasing the odds. The move comes as stock splits have largely gone by the wayside in recent years. Only 11 companies in the S&P 500 “split” their shares in 2013.
Why the companies are splitting stock makes absolute sense. Both Apple and Google wants to attract more investors. The lower stock trade will not only attract consumers but retailers as well. Even though the company’s market value remains the same, the purpose of a lower price per share often excites investors who previously shied away from a stock because it looked way too expensive. The distribution will increase Apple’s outstanding stock from about 861 million shares to about a staggering 6 billion shares.
Even though a stock split seems reasonable, it’s literally becoming a thing of the past. Stock splits is nothing new. eBay started a stock split back in 1999 with a 3 in 1 and brought the stock up by over 37%. Xerox did the same and sent their stock up by 10%. As for Apple, this isn’t the first stock split the company has had, so they have experience with this type of ordeal. Apple has completed 2-for-1 splits on three previous occasions. One of them was on May of 1987, the other one was on June 2000 and the other was on February in 2005. The stock rose 2 percent in the first year after the 1987 split and surged by 60% in the first year after the 2005 split. As for Google, this is the first stock split since the company has been in existence.
I believe this was a good move for Google and Apple. Stock splits are important because they allow stocks to be more accessible to the average investor with a limited portfolio. Because it will also help the companies gain more investors, it is a win-win solution. This means that the companies will gain more control of themselves without a huge stock inflation forcing upcoming and small investors to run away. Good move.