By Lewis Krauskopf and John McCrank
NEW YORK (Reuters) - Alphabet (NASDAQ:GOOGL) Inc's 20-for-1 stock split puts it on course to follow other major companies that have executed similar moves in recent years.
The Google parent's share price soared more thn 8% on Wednesday after it reported record quarterly sales along with the share split.
Other megacap peers that have undertaken stock splits since 2020 include Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Nvidia.
(Graphic: Alphabet shares versus rival megacaps, https://fingfx.thomsonreuters.com/gfx/mkt/znvnejxdrpl/Pasted%20image%201643820200973.png)
Between 2017 and 2021, 26 S&P 500 companies executed stock splits, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Peng Cheng, head of machine learning strategies at JP Morgan, said stock splits in general have a "psychological effect."
"One would much rather spend $100 and own 100 shares, than to own 0.1 share," Cheng said. "We observe lower retail participation in high-priced stocks than low-priced stocks."
Retail buying surged in the wake of both the Apple and Tesla stock split announcements, analysts at Vanda Research said. When Apple announced its 4-for-1 split in July 2020, retail investors went from purchasing less than $150 million in Apple stock each week to nearly $1 billion, according to Vanda.
After Tesla's 5-for-1 split announcement in August 2020, retail buying jumped from $30 million-$40 million per week pre-announcement to over $700 million a few weeks later.
"Alphabet’s announcement will almost certainly end up increasing retail investors’ activity in the stock," Vanda analysts said in emailed comments to Reuters.
For Alphabet, analysts said the stock split could pave the way for its addition to the Dow Jones Industrial Average. By reducing its stock price from roughly $3,000 now to $150 a share, Alphabet would make its stock more palatable for the 30-member Dow, which is a price-weighted index, meaning that high-priced stocks have an outsized influence.
"A 20:1 stock split may bring more retail investors into the stock and could help set the stage for inclusion into the DJIA," UBS analysts said in a research note.
Alphabet shares were up 8% on Wednesday, lifting its market value near $2 trillion, which would put it in elite company with Apple and Microsoft (NASDAQ:MSFT). Because Alphabet alone has a greater-than-4% weight in the benchmark S&P 500 and well over 7% weight in the Nasdaq, its climb on Wednesday helped support those indexes, which in January posted their biggest monthly drops since March 2020.
(Graphic: Megacap companies' influence on the U.S. stock market, https://graphics.reuters.com/USA-STOCKS/ALPHABET/znpnejkyrvl/chart.png)
Alphabet reported record quarterly sales that topped expectations. For the year, the company reported revenue of $257.6 billion, a 41% jump.
(Graphic: Alphabet's annual results, 2012-2021, https://graphics.reuters.com/USA-STOCKS/ALPHABET/xmvjojrzqpr/chart.png)