Any investor who has purchased or considered purchasing shares of Google and YouTube parent company Alphabet Inc. (ticker: GOOG, GOOGL) has likely noticed that there are two different routes to take. Tickers GOOG and GOOGL are both Alphabet stock, but they represent two different share classes.
Most public companies only have one class of common stock, but there are plenty of examples of companies with multiple share classes. There are a couple of reasons a company might choose a seemingly more complicated share structure involving multiple classes, but the most common reason involves insiders maintaining control of the company.
When it comes to GOOG vs. GOOGL, what’s the difference between the two, and which is right for you? Here are some points to consider:
— Why companies use multiple stock classes.
— The difference between GOOG and GOOGL.
— Other multiclass stocks.
— Which is the better investment, GOOG or GOOGL?
Why Companies Use Multiple Stock Classes
Typically, one of the major trade-offs when a private company chooses to go public is that the founders and company executives turn over control of the company. An initial public offering represents the owners of the company selling it to public investors. Of course, they almost never sell the entire company, only a certain percentage of their ownership.
Every time a company completes an offering, whether it be an IPO or a secondary offering, company insiders are theoretically losing more and more control of the company. Shares of stock typically come with voting rights that allow shareholders to have the last word on any major decisions the company makes. For example, shareholders typically vote to elect board members, to approve policy changes, to issue new securities or to approve merger deals.
Founders and board members often make recommendations on how public shareholders should vote on any given issue. But at the end of the day, the only sure way for insiders to maintain control of a company is to secure slightly more than 50% of the voting rights.
If you have one common stock share class in which each share represents one vote, maintaining control of the company means owning more than 50% of all shares. However, Alphabet and other companies set up multiple share classes that each come with unique voting rights. Company insiders typically own shares of stock that have more voting rights than shares sold to public investors as a way to maintain control of the company.
[Read: 7 Best Video Game Stocks to Buy.]
Difference Between GOOG and GOOGL
Google first went public under the ticker GOOG in 2004. At the time, the company created two classes of stock. Google offered Class A stock to the public. Google co-founders Larry Page and Sergey Brin, along with other Google executive managers and directors, owned Class B stock. Class B stock held 10 times the voting rights of Class A shares, allowing company insiders to maintain control.
In 2014, Google completed a somewhat unconventional stock split. The move included a 2-for-1 split of the public Class A stock and the creation of a new Class C stock that included no voting rights. The new stock class was created in large part because Page and Brin were concerned that the company’s stock issuance associated with acquisitions and executive compensation would eventually erode their control of the majority of Google’s voting rights.
Following the split, Google’s Class A shares with voting rights began trading under the new ticker GOOGL. The new Class C shares with no voting rights took over the GOOG ticker.
Google restructured its business and changed its name to Alphabet in 2015, but the reorganization did not impact the three share classes.
As of January 2021, Alphabet had 300,737,081 shares of Class A stock outstanding, 45,843,112 shares of Class B stock outstanding, and 327,556,472 shares of Class C stock outstanding. As of the end of 2020, Page and Brin collectively owned 85.3% of Alphabet’s Class B shares. A quick crunch of the numbers reveals that Page and Brin’s shares represent 51.5% of Alphabet’s total voting rights. The fact that percentage is slightly more than 50% is certainly no coincidence.
There’s not much of a difference between owning shares of GOOG or GOOGL at this point. Both shares represent an equal ownership stake in Alphabet. GOOGL shareholders get voting rights and GOOG shareholders don’t, but Page and Brin control the company and can outvote even a 100% consensus of Class A public shareholders.
The market assigns no extra value to those voting rights at the moment. In fact, GOOG shares without voting rights recently traded at $2,829.27, about a 0.4% premium to the GOOGL shares that have voting rights.
Other Multiclass Stocks
Alphabet isn’t the only well-known company that has multiple share classes.
Facebook Inc. ( FB) has public Class A shares that trade on the Nasdaq exchange and Class B shares owned by CEO Mark Zuckerberg and a handful of other company insiders. Not surprisingly, Class B Facebook shares get 10 votes per share, compared to one vote per Class A share.
Like Alphabet, Warren Buffett’s Berkshire Hathaway Inc. ( BRK.A, BRK.B) also has multiple classes of publicly traded shares. Class B Berkshire shares (BRK.B) carry 1/1,500th the equity ownership of Class A (BRK.A) shares and just 1/10,000th the per-share voting rights.
In addition to its Class A shares that trade publicly on the Nasdaq, media giant Comcast Corp. ( CMCSA) has Class B shares controlled by CEO Brian Roberts that represent undilutable 33.3% voting power. In other words, no matter how many shares of CMCSA stock the company issues, Roberts will still control a third of the voting rights.
Zoom Video Communications Inc. ( ZM) also has Class A shares that trade on the Nasdaq exchange and Class B shares held by company insiders that have 10 times the voting rights.
GOOG vs. GOOGL: Which Class Is The Better Investment?
When it comes to which share class is better for investors to buy, the answer is: It really doesn’t matter. Investors who want voting rights should opt for GOOGL shares, but they should understand their voting rights are limited given that Page and Brin essentially have full veto power.
As far as which share class is the better investment, they both represent equal ownership stakes and should continue to trade in tandem over the long term. In the past year, both tickers have nearly doubled in value.
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