Posted on: Saturday, November 6, 2004
Google unlikely to split its stock
By Michael Liedtke
Associated Press
SAN FRANCISCO — Google Inc., a company built on complex algorithms that power its online search engine, doesn't appear to be in any rush to tackle one of Wall Street's most basic equations — the stock split.
Associated Press library photo Yet all signs so far point to Google adopting an anti-split stance.
"This is a management that sees no upside to a stock split," said Barry Randall, portfolio manager for U.S. Bancorp's First American Technology Fund, which owns 4,682 Google shares. "I just don't think it's very high on the company's list of priorities."
Mark Pincus, an early investor in Google, agrees. "If I had to wager, I would bet they won't ever split it," said Pincus, who runs a privately held Internet company, Tribe Networks.
Mountain View-based Google hasn't publicly addressed the stock-split issue since its initial public offering in August. Company spokesman Steve Langdon declined comment earlier this week.
THE ISSUE: Will Google Inc. split its stock to make the per-share price more affordable for the masses? HOW SPLITS WORK: If Google executed a 4-for-1 split, shares outstanding would quadruple to 1.1 billion and the price would fall to $42.57 from $170.29 at yesterday's market close. Shareholders would see their shares quadruple, but their total value would not change. WHY GOOGLE MIGHT NOT SPLIT: By lowering the per-share price, stock splits make it easier for short-term investors to buy and sell stocks — behavior that Google wants to discourage. But Google co-founders and controlling shareholders Larry Page and Sergey Brin already have made it clear that they intend to defy stock market conventions — an objective that would be furthered by eschewing stock splits.
Page and Brin outlined their unorthodox philosophy in a pre-IPO manifesto that they called an "owner's manual" for shareholders. The letter underscored the co-founders' deep admiration of fellow billionaire, Warren Buffett.
The Buffett-run Berkshire Hathaway Inc. has never split its stock, an anomaly that contributed to the company's eye-popping share price of $83,390 through trading yesterday.
Buffett frowns on stock splits because he believes it paves the way for more short-term speculators to buy and sell shares — a phenomenon that Google also wants to discourage.
"We would request our shareholders take the long-term view," Page and Brin wrote in their IPO letter. "... A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half hour."
Most corporate boards have embraced splits because they provide a temporary boost in the stock by creating the perception of a cheaper price.
A stock split wouldn't affect Google's current market value of about $47 billion, but it would cut the stock's share price — an outcome that theoretically opens the investment door to more Main Street investors with limited budgets.
A stock split lowers the nominal share price by increasing the number of shares outstanding.
Yahoo Inc., perhaps Google's biggest rival, has split its stock four times, including three times within its first four years of going public. If not for the splits, Yahoo's shares would be valued at $872.40 instead of their closing price yesterday of $36.35.
This widely used market maneuver is designed to make a stock more affordable to the masses, something that would seemingly appeal to an egalitarian-minded company like Google, whose shares crossed the $200 threshold for the first time earlier this week.
All signs so far point to Google Inc., which was built on complex algorithms that power its online search engine, adopting an anti-stock split stance. Google shares crossed the $200 threshhold this week.
Stock splits have become so commonplace in corporate America that investors almost reflexively expect them whenever a company's share price approaches $100. Stock splits have been completed or announced by 2,682 companies so far this year, according to Thomson First Call.
GOOGLE DECISION ON STOCK SPLITS
