January 5, 2006 1:05 PM PST
Google: Where's the stock split?
The obvious way to address that issue would be to conduct a stock split to bring down Google's share price. But financial experts don't expect that to happen. Simply put, with demand for the search giant's shares still going strong, Google executives have little reason to call for a split, and they may well be philosophically opposed to it.
"Google does not have trouble with the trading of their stock, even at the high price. To that extent you could say, 'Why should they bother?'" said James J. Angel, an associate finance professor at Georgetown University. "They don't have to split the stock because it probably would not do that much for them."
It's the rare publicly traded technology company that doesn't split its stock when the price climbs into Google's current territory, particularly since most trades are conducted in blocks of 100 shares. Yahoo has done it. So have eBay, Microsoft and countless other tech companies over the years.
These days, buying 100 Google shares would cost about $45,000. A stock split would cut that down. Not a lot, but it would help. A 2-for-1 split, for example, would mean that existing investors retain twice as many shares as they held before, with each worth half the previous price. New investors, in turn, could buy subsequent shares for half the previous price.
Splitting the stock does not change each shareholder's equity or the aggregate market value of the company. But it can result in a quick jump in the company's postsplit share price, experts said, since investors often consider the decision to split the stock an optimistic sign from management about the future stock price.
But at least so far, Google's management doesn't sound at all interested in a split. At the company's annual shareholder meeting in May, Chief Executive Eric Schmidt said Google had no such plans. The company has not indicated any intention to change that policy, and a representative said he could not comment on whether it would change.
"Our primary focus is on making Google more beneficial for users and customers, and on building a world-class company," a Google representative said in a statement. "As a policy, we have no comment on Google's stock price."
Google certainly doesn't need to do it to generate buzz. Co-founder Larry Page is expected to deliver a keynote speech at the Consumer Electronics Show in Las Vegas on Friday, and Google watchers have been speculating all week about what he will announce.
There's a certain irony to this. When Google went public, its executives were adamant about conducting an unusual IPO auction that was intended to, at least in part, make the company's shares more accessible to individual investors.
Of course, there's little that's usual about this fast-growing Silicon Valley company. Google insiders still own 35 percent of the company, an unusually high percentage for a business with a market cap approaching $132 billion. And though institutional investors typically own at least half the outstanding shares of a big tech company--institutions own 72 percent of Yahoo, for example--Google's institutional stake is a low 38 percent.
Although finance experts said there's no compelling reason for Google to split its stock now, despite the lofty price, the pressure could only increase in the coming months. On Tuesday, Piper Jaffray analyst Safa Rashtchy raised his price target for Google to $600 a share for the next year.
"That is priced too high for investors who want to build risk-efficient portfolios," said David Ikenberry, chairman of the finance department at the College of Business at the University of Illinois in Champaign.
"As the stock price goes up and up and up, more and more investors will begin to become more price sensitive on the retail side and you should expect to see fewer of them," Ikenberry said. "In other words, there will be fewer Aunt Ethels" buying Google stock.
But it likely would take a change in investment philosophy for Google to conduct a split, since the financial idol of its co-founders is the legendary Warren Buffett, chairman of Berkshire Hathaway, said Bear Stearns analyst Robert Peck. Buffett is a critic of stock splits, and his company's share price is currently hovering around $89,690.
"It's been our inclination all along that (Google) won't split their stock," Peck said. "The counter argument is that if you can make the stock cheaper it is cheaper for the common man, and Google's premise is to help the common man."
At the close of trading Thursday, cheaper was not yet an option. Google shares closed at an all-time high of $451.24.
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