What Is The Difference Between GOOG And GOOGL Alphabet Stocks?

When a company decides to go public, it can be both a seminal event as well as a worrying event for the founders. They have poured their hearts and souls into helping their projects grow from a startup in a basement to a four-floor office in a towering skyscraper. One of the most difficult emotions that founders must deal with is the loss of control. They surely want to take advantage of being a public company with access to the liquidity available through public markets but worry about how issuing shares will dilute their control. One of the ways founders try to maintain control is by offering different types of shares. In the case of Alphabet, the company lists different types of shares through different ticker symbols: GOOG and GOOGL.

GOOGL is the ticker symbol for Class A shares of Alphabet stock, and GOOG is the ticker symbol for Class C shares of Alphabet. The fundamental difference between the two shares is that Class A shares come with shareholder voting rights while Class C shares do not. Due to this differential, GOOGL Class A shares are typically valued slightly higher than GOOG Class C shares.

Many companies have used a similar strategy for two primary reasons. The first is so that the founders and original investors of the company can maintain control and continue to craft the company in their vision. The second is to ward off what they see as “predatory” investors, such as activist ones, to prevent a takeover.

Before we delve into the intricacies of Alphabet specifically, it’s important to understand how companies utilize different share structures and multiple share classes. The most commonly used classes are as follows:

Class A shares are held by investors with standard voting rights. Each Class A share has one vote.

Class B shares are held by the founders and sometimes the original investors and backers. B stock comes with 10 times the voting rights of Class A. When Google went public, the founders Sergey Brin and Larry Page held the vast majority of the available Class B shares, along with other directors.

Class C Shares are usually held by employees and other regular investors. The shares do not come with voting rights.

GOOGL is the ticker symbol for Class A shares of Google stock, which were initially made available when Google went public in 2004. For a long time, these were the only shares made available to the public market under the ticker symbol “GOOG.” In 2014, Google decided to split its stock and began issuing new Class C stock on the public market (Nasdaq), naming these new shares GOOG and renaming the Class A shares GOOGL. In 2015, Google reorganized the company into Alphabet. So as it stands, GOOG represents Class C shares in Alphabet, and GOOGL represents Class A shares in Alphabet.

Although there may be more technical reasons that Alphabet split the shares of the company, it mainly has to do with voting rights. If too many shares with voting rights accumulate, investors can make significant changes that might be outside of their own vision for the company. The primary reasons are to:

Founders often want to maintain as much control as possible throughout the life of a company. If a company continues to grow, then chances are it will raise more money from the public markets, possibly diluting control. Issuing Class C shares instead of Class A shares allows them to issue shares while maintaining legal control of the company.

Activist investors are funds that look to acquire enough voting shares to start making significant changes with their voting rights and control the board. Carl Icahn and Bill Ackman are two famous activist investors you might have heard about. Many CEOs and boardrooms, however, see activist investors as trying to extract as much value for shareholders as possible while not being as concerned with the long-term trajectory of the company. Class C shares disincentivize activist investors from trying to take control of a company.

A stock split happens when a company increases its number of outstanding shares. They will do this by offering more shares to the current shareholders of the company, typically with a certain ratio. For example, 2:1, 5:1, and other ratios represent the number of new stocks being issued in exchange for old stock. Here is the history of Google and Alphabet’s stock splits historically.

Ratio: 2002:1000 (2:1)

The Class C shares were first introduced to the market in March 2014. Alphabet allowed slightly more than two Class C shares (GOOG stock) to be issued for every Class A share (GOOGL). The ratio is 2002:1000, which is very close to 2:1. To explain it more simply, for every one class A share, the shareholder would receive two Class C shares.

Ratio: 20:1

In July of 2022, Google completed its second major stock split with a 20:1 ratio. This means that each investor received 20 shares of GOOGL or GOOG stock for each share that they owned. This was the largest stock split for Alphabet since its initial split in 2014.

Many of the most famous tech companies in the world have issued stock splits throughout their lifetimes. You can see a brief snapshot below.

Every company listed on the table, with the exception of Meta (Facebook) has been split multiple times. You can see the cumulative increase of shares over time. One of the reasons Meta never split stock, however, is because Meta was structured differently than most companies at the time it went public.

When Facebook went public in 2012, it structured the shares so that it became almost impossible to ever oust control from Mark Zuckerberg. The reason for this lies in the underlying share structure.

At Facebook’s IPO, Mark Zuckerberg only controlled 28.2% of the company. This, in theory, is too little not to be ousted by the board at some point. However, he was issued additional “shares subject to proxy” that allowed him to receive an additional 30.6% of the voting power. This has allowed him to maintain 56.9 % of the voting rights in the company. In essence, he is able to control the majority of the voting power in Meta at all times.

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GOOGL shares, in most cases, will trade higher than GOOG due to the inclusion of voting rights. That being said, they will often trade at similar prices.

In the case of GOOG, Class C stock is often more affordable, and some would say better value for your money. Most retail investors will never buy enough Class A shares to have any impact on the board of directors or when votes are held. However, each person is different, so if voting rights are something that you value higher than affordability, you might consider GOOGL Class A shares.

GOOGL is considered slightly more liquid, but there is not much difference between the two.

Neither GOOG nor GOOGL pay dividends nor have they ever paid them. The company wishes to spend its cash on research and growth opportunities. But just as Apple started paying dividends, Google could start doing it eventually.