Alphabet Stock A Vs B?

Alphabet Stock A Vs B: It might surprise new investors to learn that Google’s parent company, Alphabet Inc., offers the option of buying two different kinds of share when purchasing a stake in its stock.

Seasoned investors know that the business trades under the dual tickers of GOOG and GOOGL, but they may not know why. The main difference between these two types of stock lies in the fact that one of them, GOOGL, comes with voting rights for the shareholder, whereas the other, GOOG, does not.

How did this come about, and which one of these is the best buy for a prospective investor.

Why Does Google Stock Have Two Ticker Symbols?

The existence of these two separate Google tickers arose after the company underwent a stock split back in April 2014.

There are plenty of good reasons for a company to split its stock, but in Google’s case it had a very specific aim in mind.

Right from the early days of the tech-giants founding, Google had a clear vision of how it wanted to conduct its business – and the firm placed great importance to the ethical precepts that its owners, Sergey Brin and Larry Page, articulated with their corporate motto “Don’t be evil” and their belief in an engineer-driven, and not a money-focused, enterprise. 

But to ensure the firm remained committed to its corporate values and mission statement, the duo felt it was critical they kept overall control of the company.

To do this, Google decided on a stock split that would create two kinds of shares: Class-A shares, which would trade under the GOOGL ticker; and Class-C shares, which would trade under the GOOG ticker.

They made the split 2-1, meaning that there were now twice as many shares in the company as before, and the price of each share would consequently drop by half. 

What Is The Difference Between Google Stock Class-A and Class-C

Each of the two new kinds of stock – Class-A and Class-C – both give shareholders a stake in the business; but only Class-A, also known as common stock, entitles the holder to company voting rights.

Generally, Class-A shares are the most common form issued by companies, and Class-C shares, ultimately because they do not come with voting privileges, normally trade at a discount to Class-A shares.

However, in Google’s case, both Class-A and Class-C have been very closely matched price-wise ever since the initial split took place seven years ago.

Should I Buy Class-A or Class-B Shares?

There is also a third class of shares referred to as Class-B stock. These are not publicly traded; instead, they are owned by the founders of the company, and a select few insiders.

The rights afforded to Class-B shareholders vary between company, but in Google’s case they grant the recipient 10 votes per share held. The 46.4 million Class-B shares owned by the Alphabet founders therefore accounts for 464 million votes in the company, making up a majority 60% of the firm’s voting power and thus overall control of the business.

Ownership of Google Class-B shares obviously means that each individual holder enjoys more power to sway corporate decision-making and policy through their extended voting rights. For many companies, this is especially beneficial for heading off the ambitions of activist investors who might seek to gain control of a business through a hostile takeover.

For anyone given the opportunity to purchase Class-B stock it is always important to scrutinize the terms that come with a particular share release. Some companies issue Class-B stock with the proviso that holders will actually get fewer voting rights, or receive lower priority when it comes to repayment in the event of the firm going bankrupt.

The decision to choose Class-A or Class-B should always be made on a company-specific basis – but in the case of Google, all other things being equal, Class-B would be the better option due principally because of the preferential voting rights associated with them.

Is It Better To Buy GOOG or GOOGL?

On the face of it, the Class-A type GOOGL share is the most attractive since it comes with voting rights which GOOG stocks lack.

Both GOOG and GOOGL have traded very near to one-another since the split, and at the time of writing are separated in price by a mere $34, with GOOG worth approximately $2,320 and GOOGL worth $2,286.

However, there are some subtle differences between the two stocks that might be important depending on how an investor plans to trade their shares. For instance, GOOGL has a significantly higher trading volume compared to GOOG, suggesting more liquidity for that ticker, and the absolute number of shares outstanding for each kind differs – with there being 341.0 million Class-C GOOG shares, and 299.9 million Class-A GOOGL. 

At the moment, Alphabet doesn’t pay a dividend; but if it did so in the future, the company has guaranteed that each type of share would receive an equal payout. So there’s not too much to differentiate between them here.

In the end, both tickers should do equally well over the long-term from a price appreciation point of view. 

But, if one type of stock were to outperform the other for fundamental reasons, it would be the Class-A GOOGL variety. For instance, if a takeover bid ever manifested itself in the future, those Class-A shares – with their attendant voting rights – would be the ones most likely in demand – and which would, necessarily, see a rapid gain in valuation over the Class-C type. So, hedge your bets – and just buy GOOGL.

 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.