Is Google's management sticking it to its common shareholders?
The tech giant plans on issuing a two-for-one stock split for holders of class A and class B shares on April 2. But, here's the thing: The new shares that are issued will be new, non-voting class C stocks. That's a move to protect the company's management.
Right now, there are 279.9 million class A stocks for the average shareholder. They get one vote each.
Google's top executives hold 56.2 million class B stock but they each get 10 votes or a total of 562 million votes out of 841.9 million possible. That means 17% of the shares control 67% of the votes at Google.
Now, were the company to pay everyone in class A shares, there would 616 million class A stocks controlling 52% of the vote (out of 1.18 billion possible were all shares voting shares).
Sergey Brin, Larry Page, and everyone else with class B were not going to have any of that. So, by issuing non-voting class C shares, class B owners can cash out of their shares while not worrying about moving some nefarious activist shareholder harrying the board while owning a handful of newly-minted shares.
Pretty slick, eh?
Brian Wieser, Senior Analyst at Pivotal Research Group, doesn't believe the new class of shares will matter that much to investors or the stock price.
"I'm not inclined to believe it will impact it very much," says Wieser on CNBC's Street Signs' Talking Numbers segment. "I don’t think any investor plans to have control of this company. You're basically along for the ride."
However, Wieser believes this move means investors will now look at earnings more closely. And, should they do so, they may notice that, for instance, gross margins have gone from 65% to 56% in the past two years.
"I think that investors are going to focus on top line a little bit less than they have as there is a de-risking," says Wiser. "My view's a bit more tepid because I think investors aren't giving full credit to margin compression, which is a real issue."
(See: CNBC's Tech coverage)
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, notes that this month has been tough on highflying tech stock such as Google and the like. Indeed, Google's stock is down 7% since the start of March.
What's more, Google has broken through key technical support levels over the past few days according to Ross. Not only did it break below its 50-day moving average last week, it also dipped below its 100-day moving average. It could head down further from here, according to Ross.
"I think Google trades lower," says Ross." I think we test the 200-day moving average. That could be another 9% downside from here. So, I think you want to watch out."
But that's not the last stop down, believes Ross.
"This stock hasn't 50-week moving average for some time," says Ross. "That brings you down to around $998 – that magical $1,000 level. That's a total 20% decline from the top. That's pretty standard stuff in the lifecycle of a tech stock."
"As an investor, you want to wait for a more compelling entry point."
To see the full discussion on Google with Wieser on the fundamentals and Ross on the technicals, watch the video above.
- Investment & Company Information