Today (Thursday) is the first trading session for Google Inc. (Nasdaq: GOOGL) following yesterday's 2-for-1 stock split, and shares were up nearly 3% in early trading.
The Google stock split yesterday means shareholders of record as of March 27 received an additional share for every share they previously owned, and share value was halved. Through the deal, investors who owned "Class A" shares were given "Class C" shares.
Class A shares were given the new ticker symbol "GOOGL," while the Class C shares inherited the original ticker symbol "GOOG."
Shares of GOOGL opened today at $573.39 while shares of GOOG opened at $569.85, due to premarket trading. GOOG stock had been trading near $1,125 per share prior to the split.
While GOOGL stock was up about 3%, shares of GOOG were up almost 4% in morning trading.
For investors wondering why GOOG and GOOGL shares are up today following the Google stock split, the answer is actually quite simple...
Why GOOG and GOOGL Stock Are Up Today
The first-day gains from Google stock are not surprising at all, as short-term gains are common following stock splits like the one Google finalized yesterday.
GOOG stock was very expensive before the split, at more than $1,125 per share. That price tag weeds out many everyday investors or "retail investors" who don't want to drop that much cash on a single share.
Now that the stock price is much lower, retail investors have a more affordable buy-in point. Technically, the value of the shares is the same since it was just split over two classes, but retail investors can now buy shares at a lower price.
Trading volume on Google stock has been very high today, and before 10 a.m. more than 500,000 GOOG shares had been traded. Previously, GOOG stock had a three-month average of just under 44,000 shares traded daily, according to Yahoo! Finance.
As the trade volume of the stock increases due to the new buyers, so too do the price and the volatility of the stock...
"Letting the individual stock price go up very high kept a lot of the riff raff out of the market (day traders) and this made the stock far less volatile," Rob Enderle of the Enderle Group told MarketWatch before the split. "By doing a split it will bring more investors in and likely result in a much higher valuation and the result should still be reasonably high but volatility will likely increase somewhat."
Shareholders and new buyers are clearly pleased by the stock's recent gains, but many are still wondering why the Google stock split happened in the first place...
Why Google Split Its Stock
By splitting Google's stock, company Founders Larry Page and Sergey Brin were effectively maintaining their control over the company.
In addition to the original Class A and the new Class C shares, Google also has "Class B" shares. Google Founders Larry Page and Sergey Brin own every single Class B share, and those shares do not trade publicly.
When it comes to voting rights, Class A shares each carry one vote, while Class B shares each carry 10 votes. Importantly, the newly offered Class C shares come with no voting rights. Google will only be issuing new shares of Class C moving forward, which prevents Brin and Page's voting power from being further diluted.
Currently, the two founders control about 56% of Google's voting power. The split ensures they maintain that majority vote.
Unfortunately for new GOOG investors, they will be purchasing shares that have no voting power. Any short-term gains that result from the Google stock split will be a nice consolation for retail investors just getting in on GOOG or GOOGL.
Do you own GOOG or GOOGL shares? Did you buy in because of the Google stock split? Join the conversation on Twitter @moneymorning using #Google.
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