Google Inc (NASDAQ:GOOG) have announced that they will split their shares at a rate of 2 for 1. Stock splits are the most common way for American companies to lower share price to increase liquidity of stock. Other than a doubling of shares for shareholders no other change will occur – no change to value of the shares. Dividends will simply be halved per share.
Google Annual Report
Yesterday Google reported a big increase in profits. It’s net income for the first quarter was up by 60% on last year, to £1.8 billion (USD2.89 billion).
Revenue exceeded USD10 billion in the first quarter of 2012 for the first time. Google’s growth in overseas business now accounts for over 50% of its revenue.
How Does Google Make Money?
Almost all of Google’s profits come from online advertising. Google Adwords is its advertising platform (the adverts displayed on Shareholders Portal are Google adverts).
Google displays its managed adverts on Google search engine results pages and on its publisher network. The publisher network is free to use by any website and is now the most popular advertising network in the world.
Google also makes money through its Android operating system for smartphones as well as its Google Checkout operations. However, Android is the fastest growing part of its business with over 850,000 new devices going online every.
Google currently holds around $49.3 billion in cash. It has the potential to grow significantly, although currently there are no plans for any major acquisitions. However, even though Google is cash rich there has been no dividend payment announced.
Paid clicks rose 39%
Google has seen a massive increase in the money it is making through its advertising network. Over the last 14 months Google has commenced a series of major updates to its search algorithm called Project Panda.
Project Panda started in February 2011 in the USA and then was rolled out globally from April 2011. This resulted in a major shakeup in its search engine results pages (SERPs). The project was designed to ensure that higher quality websites ranked better in the Google index. This has benefited both users (those who search) and customers (those who advertise).
The end result has contributed to a 39% increase in revenue.
Why is Google Splitting Its Stock?
As stock prices increase shares become less attractive to the smaller investor. Although big investment companies are the ones always discussed in the media, for most companies a majority of shares are owned by private individuals.
A 2 for 1 split simply halves the share price, making the price more attractive to the consumer. Of course, the value of the company is not altered in the corporate action.
Class C Non Voting Shares
The stock split is also issuing non-voting shares which simply means that shareholders will not increase be able to vote on meeting agenda items by holding the stock.
Sergey Brin and Larry Page, who are the founders of Google, remain major shareholders and keep the controlling stake in the company. It has always been Brin and Page’s objective to ensure that Google is protected from hostile takeover risk or influence from other parties, which is why they have decided to keep a controlling stake in the business.
“We have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users,” Sergey Brin and Larry Page.
You can read their full statement in the 2012 Founders’ Letter in the Investor Relations pages on Google.com.
They also say that they are building a corporate structure to ensure long term stability while also allowing them to innovate and develop new ideas and methodologies.
“New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights.”
Ex-date and Pay Date for Google Stock Split
Google have not yet announced the ex-date or pay date for the stock split.
Google Share Prices
Google is currently trading at USD651.51 and is up 2.37% on the back of this news.
For the latest prices and news on Google visit https://www.google.co.uk/finance?client=ob&q=NASDAQ:GOOG
Future of Google?
Google’s new social networking site, Google+, is growing and Google appear to be focusing on this at the moment. it is constantly updating and enhancing the service. Google+ now has around 170 million users, which although is still only 20% of Facebook’s 850 million users, it is growing at a significant rate.
Google’s own web browser, Chrome, is becoming more popular too, although it is not clear how this can help boost revenue.