Alphabet, the parent company of Google and other subsidiaries, is one of the most valuable and influential companies in the world. However, investors who want to buy shares of Alphabet may be confused by the fact that there are two different stocks with the tickers GOOG and GOOGL. What is the difference between these two stocks and which one should you buy?
The Origin of the Stock Split
The story of GOOG and GOOGL goes back to 2014, when Google announced a 2-for-1 stock split that created a new class of non-voting shares. At the time, Google had only one class of publicly traded shares, known as Class A, which had one vote per share. The company also had another class of shares, known as Class B, which had 10 votes per share and were held by the founders and insiders.
The stock split issued a new class of shares, known as Class C, which had no voting rights at all. Each Class A shareholder received one Class C share for each Class A share they owned. The Class B shareholders also received Class C shares, but they retained their Class B shares as well.
The main reason for the stock split was to preserve the voting power of the founders and insiders, who owned most of the Class B shares. By issuing non-voting shares to the public, they could raise capital without diluting their control over the company. The founders argued that this would allow them to focus on the long-term vision and innovation of Google, without being distracted by short-term market pressures.
The Difference Between GOOG and GOOGL
After the stock split, Google changed its name to Alphabet in 2015 and restructured its business into various segments. The company also changed its ticker symbols to reflect its new identity. The Class A shares became GOOGL, while the Class C shares became GOOG. The Class B shares remained private and did not trade publicly.
The main difference between GOOG and GOOGL is that GOOGL shares have voting rights, while GOOG shares do not. This means that GOOGL shareholders can participate in the decision-making process at Alphabet’s annual shareholder meetings, such as electing board members, approving policy changes, or voting on mergers and acquisitions. GOOG shareholders have no say in these matters.
However, in practice, the voting power of GOOGL shareholders is very limited, since the founders and insiders still own most of the Class B shares, which have 10 times more votes than Class A shares. As of June 30, 2023, Larry Page and Sergey Brin owned 51% of the total voting power of Alphabet, while other executives and directors owned another 5%. This means that they can effectively override any decision made by the GOOGL shareholders.
Which Stock Should You Buy?
Theoretically, GOOGL shares should trade at a premium to GOOG shares, since they have more rights and privileges. However, in reality, the price difference between the two stocks is usually very small, often less than 1%. This is because most investors do not value the voting rights very highly, since they know that they have little influence over the company’s direction.
Therefore, choosing between GOOG and GOOGL may not make a big difference for most investors. Both stocks represent the same ownership stake in Alphabet and have similar performance and dividend history. The only reason to prefer GOOGL over GOOG is if you care about having a voice in the company’s affairs, even if it is a weak one.
Alternatively, you can buy both stocks to diversify your portfolio and hedge against any potential price divergence in the future. Some index funds and ETFs that track Alphabet also hold both stocks in their portfolios.