What is the difference between Goog and Googl?Submitted by Headwater Investment Consulting on June 8th, 2016
By Kevin Chambers
Some companies have different shares of their stock. As an example, Google (Alphabet) has three different shares: A, B, and C. To understand why a company may do this, we need to think about the basics of stocks.
A stock is a partial ownership stake in a company. As a stockholder, you are given certain rights. Originally, there were only two types of stock to think about: preferred and common. Preferred stock holders get paid first; however, for this privilege they give up their voting rights. Preferred stocks actually act a lot more like bonds and are bought to have access to steady income. In a scenario in which the company is going through default or may suspend dividends, preferred owners are more likely to be paid. Common stocks are the tickers you see on the NYSE and the NASDAQ tape. The Google shares are all common stock. So how are they different? It comes all down to the voting rights.
The Google A shares (Googl), the original shares in the company, get one vote. In 2014 when they restructured and created Alphabet as their parent company, the company decided to split their stock 1 for 1. That means every A shareholder at the time, received a C share as well. The difference was the C shares had no voting rights. This doubled the number of shares on the market and the price was cut in half. The A and C shares continue to trade at very similar prices. For example, Goog (C shares) was trading at $735.72 and Googl (A shares) trading at $748.85 as of 5/31/2016. The A shares get a slight premium for their voting shares, yet the two classes track fairly similarly.
As you are reading this, you may be thinking, “You skipped B shares!” Why? The Google B shares are not sold on the open market. Google insiders such as the founders Sergey Brin and Larry Page own them. B shares carry 10 votes each. B shares control about 60% of outstanding votes. This is the way that the founders and the company higher-ups retain control over their ever-expanding empire.
In our portfolios, just like all of our stock positions, Google is held in equity mutual funds. For example, the Vanguard Total Stock Market Fund (VTSMX) owns both of the publicly traded share types in their portfolio of 3,600 stocks. They own about 5.6 million shares of each A and C, which combined make up about 2% of the total fund.
Having multiple stock shares with different voting rights is fairly common. Facebook and Berkshire Hathaway are a couple of other mainstream companies that have different classes of stock with different voting rights. Since each company defines what their different share classes mean, there is no standard definition for what A, B, and C class shares represent. This is a valuable tool for companies and allows investors access to stocks that otherwise would be too expensive. It is important to know what share of stock you are buying, and if paying a premium for voting rights is important to you.