Why do you always get two results for Google’s stock (or Alphabet’s, I can’t ever get used to that!)? The ticker symbol GOOG and GOOGL. Have you ever wondered why Google has two stocks listed in the market? What is the difference between them? And, more importantly, which one should you choose?
If you are a new investor, you might be a bit confused by these different classes of stocks. So, let’s take a look at what these share classes mean for your investment decision.
You probably know Alphabet (Google’s parent company) for its search engine and other services such as Google Maps, Gmail, Google Cloud, Android, and various products. Their headquarters are in Mountainview, California. Since August 19th, 2004, Google has been a public company on Wall Street.
Difference Between GOOG and GOOGL
At the time of writing, the price of both these stocks is roughly the same. So it’s not necessarily the price that is different. The only difference between GOOG and GOOGL is in the voting power these stocks provide you with. As an owner of stocks, you sometimes get voting power. That gives you a voice in company matters that are put to voting. Read more about that below.
GOOG is a stock that does not come with any voting power at all. In contrast, GOOGL shares are the ones that will give you 1 vote per share you own. You have the right to participate in the votes at Google’s annual shareholder meetings.
Google created these new shares in April 2014. They did a very unconventional 2-to-1 split at that time. The motivation for this split was to “preserve the corporate structure that has allowed Google to remain focused on the long term.” Google was concerned about retaining their voting rights. You can diminish your voting rights over time if you make many strategic acquisitions and issue stock as part of such deals.
All Classes Of Shares From Alphabet
Alphabet Inc. actually does have a third class of shares. But only two of them are traded in the open market:
- Class A – This is what you know as GOOGL. It is traded in the public market and, thus, available to you as a retail investor.
- Class B – These shares aren’t traded in the public market. They are reserved for founders and private investors. These shares have 10 times more voting power per share than GOOGL shares.
- Class C – The class c shares are the nonvoting shares. You and all other individual investors can buy those in public markets.
Larry Page and Sergey Brin own 44% and 42% of the Class B shares, respectively. These shares give them a combined majority vote of 51.2% to hold control of the company. They are by far the biggest shareholders of all company insiders and institutional investors. In 2019, they both stepped down from executive roles as CEO and President at Google and Alphabet, but they remain active as co-founders, shareholders, and board members of Alphabet.
Which One Is The Better Investment?
Technically, GOOGL is the more valuable stock of the two. With this stock, you can make your voice heard and vote in Google’s corporate matters and any other major decisions.
This is the reason why GOOGL will sometimes have a slightly higher price. You might have to pay a small premium for that right. But it is really not a lot of difference in reality.
Want to know if Google is a good investment? Use my Investment Framework: 20 Questions You Should Ask Before Investing In Stock
Most retail investors will likely not be able to buy enough shares of GOOGL to really influence Google’s policy. Especially since the Class B shares have a much more influential voting power anyway. You could argue that for this reason, GOOG is the better buy.
Why Do Companies Like Google Have Two Stocks?
Over the decades, companies have embraced dual stock structures. While the most common form is the dual stock, you can have even more stocks listed. And their main difference is always the privilege tied to them, such as voting rights. Dividends can be another reason to offer separate stocks. This is also why Google has two stocks.
Jay R. Ritter from the University of Florida (also known as Mr. IPO) has collected data on IPOs and their stock class structure in his data paper “Initial Public Offerings: Dual Class Structure of IPOs Through 2023“. Below are the percentages of IPOs that started off with a Dual Class stock structure from 1980 to 2023:
It’s easy to see a trend toward a dual-class structure. If you separate tech stocks out, the trend becomes even more prevalent.
These separations of voting rights from the stock have not gone unnoticed. Many investors don’t like this disconnect. Erik Sherman, a Senior contributor for Forbes, writes, “Experts in corporate governance—and many investors over the years—have objected to the separation of control from equity. Those with the most money invested collectively to provide the resources a company needs to grow and thrive hold the most risk because they have the most to lose.”
Prominent Companies Using Two Stocks
What are other examples of companies that have dual stocks? Perhaps the most prominent one is Warren Buffett’s Berkshire Hathaway. But there are many more, like Ford Motor, Comcast, CBS, Nike, etc. These companies don’t always trade all of their stocks in the public market. Nike, for instance, only trades its Class B stock. However, Berkshire Hathaway trades both its original Class A (BRK-A) and the 1996-issued Class B (BRK-B) shares.
You can get a full list of dual-class companies of the Russel 3000 here.
Final Thoughts – Why Does Google Have Two Stocks?
You now know why Google has two stocks listed in the market. If you like the idea of exercising your voting rights for your investments, you should always go for the version of the stock that provides the most voting rights. Other than that, there usually isn’t too much of a difference between the stocks.
You now know the difference between GOOG and GOOGL and can make an informed decision should you decide to invest in Alphabet. When investing in individual companies, always ensure your investment portfolio is properly diversified. This way you can keep your risk level in check and avoid unnecessary risk in the first place.
In addition to that, I’ve touched on some historical data regarding dual stocks in the stock market. The trend definitely goes towards a dual stock structure that separates equity from voting rights- whether you like that or not.
Disclaimer: The information in this blog post should not be considered investment advice or a replacement thereof. They are solely provided for informational purposes. Please consult with a financial advisor for any specific questions on your financial situation. Remember that past performance is not a good indicator of future returns. Also, none of the mentioned stocks are to be understood as recommendations. Don’t buy yourself something solely based on what you read here.
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