What Does Google’s Stock Split Mean for Investors?
Google's parent company will have a fair value estimate of $180 after its 20-to-1 stock split.
The 20-for-1 split means Alphabet investors will receive an additional 19 shares for each one they already own. It will be the company's first stock split since April 2014, when it split its shares 1,998-for-1,000.
The Google stock split is set to take place after the market’s close on July 15.
The split won’t affect Morningstar senior equity analyst Ali Mogharabi’s view on the company, which he values at $3,600 per share. After the split, the company’s fair value estimate will be adjusted to $180 per share to accommodate for the 20-fold increase in the company's outstanding share count.
Alphabet’s wide Economic Moat Rating, which means the company has a competitive advantage, will be unaffected by the split.
That means the company will remain as a 4-star rated stock post-split, trading at a discount of 36% as of July 11. At a 4-star rating, Alphabet is considered undervalued.
Mogharabi says the stocks lagging performance is due to concerns about slowing economic growth and the potential for reduced advertising spending, which could have an impact on ad-revenue dependent companies like Alphabet.
“But digital ad spending is likely a bit less impacted than overall ad spending,” he says. Mogharabi sees three factors contributing the company’s upside.
“Alphabet still has room for further YouTube monetization and monetization of Maps. Also, the cloud business will continue to do well,” he says.
“Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow,” he says. “We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in the search market. “
Alphabet is one of several tech and consumer companies that have set out to split their shares this year. E-commerce platforms Amazon (AMZN) and Shopify (SHOP) have already split their shares. The next big-name is Tesla (TSLA) , which plans to put a 3-for-1 split to a vote at its annual meeting on August 4. If passed it will be the electric vehicle maker’s second stock split in three years.
Jakir Hossain has a position in the following securities mentioned above: GOOG. Find out about Morningstar’s editorial policies.