The reason for the split between the two classes of shares, which occurred in April 2014, was to preserve the control of founders Larry Page and Sergey Brin. When companies go public, often founders lose control of their company when too many shares are issued.
Alphabet has a dogged belief in its mission to organize the world's information and a strong commitment to its founders' vision. Company visions can be compromised when companies go public, as this vision often is forced to take a back seat to shareholders' interests. Markets and investors can be myopic in their search for immediate results even at the expense of long-term results. The stock split is one method that enables Brin and Page to take advantage of public-market liquidity while still retaining voting rights and not losing control of the company.
The outcome is a company the founders control, but without the majority ownership. This is done through a three-class structure:
Class A — Held by regular investor with regular voting rights (GOOGL).
Class B — Held by the founders and has 10 times the voting power compared to Class A.
Class C — No voting rights, normally held by employees and Class A stockholders (GOOG).
The Advantages of a Stock Split
Often, activist investors group together and accumulate shares to press companies into enacting shareholder-friendly initiatives such as cost cutting, share buybacks and special dividends that boost stock prices. This process can become hostile, with activists engaging in public battles to win board seats and wrest control of the company from its owners. These short-term-driven decisions are antithetical to Alphabet's mission. Page and Brin wanted to preempt this possibility, especially as Alphabet's stock price ascent slowed and growth in its core business declined.
When Alphabet was growing by leaps and bounds, it could do no wrong. As its internet search business exploded, the company had a monopoly with more than 90% of the market. Many investors thought of Alphabet as an internet ETF and considered it an integral part of stock market exposure. However, as the internet has migrated to mobile devices, Alphabet has been less successful in transitioning. Additionally, Alphabet was unsuccessful in taking advantage of the social media wave, losing out to Facebook and Twitter. The company also came under fire from critics and stockholders for its lavish employee perks, heavy spending and lack of profitable areas beyond search.
What’s the Difference Between GOOG and GOOGL?
The Bottom Line
If it wasn't for the stock split, activists may have begun to swirl around the company. The split resulted in each GOOG share being split into GOOG and GOOGL. The move continued a trend among technology companies such as Facebook, Yelp (YELP) and LinkedIn (LNKD) to consolidate control of the company among its founders. These companies inserted such controls after numerous incidents of founders being pushed out of their companies, most infamously with Steve Jobs and Apple (AAPL) in the mid-1980s. So far, the maneuver has had little impact on the stock price, with both classes trading near each other.