WALL STREET Google can't find a reason for stock split
A split would make Google stock more affordable for average investors.
SAN FRANCISCO (AP) -- 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.
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.
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.
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.
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 Friday.
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.
Most corporate boards have embraced splits because they generally provide at least 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, usually in multiples ranging from two to four times.
For instance, Google had roughly 275 million shares outstanding priced at $169.35 at Friday's close. If Google executed a 4-for-1 stock, the company would have 1.1 billion shares outstanding priced at $42.34.
Some analysts think Google's stock is bound to drop without a split, partially because nearly 267 million shares owed by company insiders will become eligible to be traded for the first time between mid-November and mid-February.