Alphabet is preparing for a stock split

Google's parent company, Alphabet holding company, published its financials for the fourth quarter of 2021, which turned out to be noticeably better than forecasts. Each share is already worth about $3,000, and the company is preparing for a split.

Alphabet increased quarterly revenue to $75.3 billion, up a third year-on-year. Advertising revenue grew at the same pace ($61.2 billion), ahead of the cloud service revenue ($5.5 billion), which, however, remained unprofitable. The total quarterly profit exceeded $20 billion.

After the publication of quarterly reports, Alphabet quotes in premarket jumped more than 10%, almost to the November all-time high. Over the past year, the company's capitalization has grown by 65%, more than doubling the S&P 500.

Alphabet also announced that it is preparing a 20-for-one split, after which its share will be worth approximately $138 at current quotes. The last time you could buy a Google share for that much was in 2005, notes . Bloomberg

What you need to know about the Alphabet Split

The split is subject to the approval of the annual meeting of shareholders, which means it will not take place before July.

The obvious goal of the split is to increase the attractiveness for retail investors (not only buying, but also option trading will be easier for them), but it is not the only one, the agency writes. The second likely goal is to get into the Dow Jones Industrial Average, which is traditionally calculated not by market capitalization, but by share price. At the current price of Alphabet's stock, the index would be in for an unacceptable rebalancing.

Stock splits in the US market have been rare lately. The big ones include Tesla five to one and Apple four to one in 2020. Both of them took place fairly soon after the price of one share hit four figures. Analysts do not exclude that Amazon (whose share costs more than $3,000) is now in line, also reporting this week.

Fundamentally, the split shouldn't affect capitalization much, but it seems that retail investors have begun to perceive it as a powerful signal to buy. So, Apple increased its capitalization by $500 billion a month after the announcement of the share split, Tesla - by 70% in 20 days, reminds the American Forbes.