

Google Plans To Split Shares 2-for-1 - diogenescynic
http://www.forbes.com/sites/ericsavitz/2012/04/12/google-q1-revs-in-line-eps-edges-street-sets-odd-2-for-1-split/

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bobz
I think this makes a lot of sense. I believe the company is better tightly
held, but this will allow them to do "start-upy" things like continuing to
grant large equity bonuses without diluting the company control.

I'm curious to see how much those voting rights will end up being worth.
Assuming the two classes have the same payout "precedence" and receive the
same dividends, any share price difference will be attributable to that voting
right. (Probably not worth very much I would imagine, but someone could
speculate that they will be more valuable in the future where a takeover was
possible).

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dpark
> _and receive the same dividends_

Yeah, they'll probably be the same there, at $0/year.

I think there will be a slight skew toward the voting shares, but probably not
a lot, since a vote at GOOG doesn't presently do anything.

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jcampbell1
It doesn't matter what the dividends are today. A rational stock valuation is
the NPV of all future dividends. There must be a guarantee that dividends will
be paid equally, otherwise there would be no rational way to price the class C
stock.

In short, the class C stock must have identical dividends to the other
classes.

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sopooneo
I have been looking for this answer since I first heard about the idea of
stock as a kid. No one else could ever provide it. Thank you.

 _"A rational stock valuation is the NPV of all future dividends"_

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dpark
Don't get too wrapped up in that answer. It assumes that investors are
rational and able to see the future, when they are neither. Stock value is
based on the same thing as everything else: what someone else will pay. Stock
prices are no more rational than home prices.

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jcampbell1
False. There is plenty of dispute about the NPV of all future dividends and
the discount rate, but the notion is a fundamental truth. It is follows from
basic math and is provable.

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joshu
indeed. pretty much all the points arguing with you are actually just
discussing ways to value npv.

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dpark
Okay, but that's not what he's claiming. He's claiming that NPV is derived
exclusively (and rationally, and perhaps clairvoyantly) from the future sum of
dividends.

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joshu
The value of the stock is the current estimation of that npv. How it is
estimated is irrelevant. It is the group estimation across all buyers and
sellers.

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dpark
I feel like you're taking part in some unrelated discussion. This entire
discussion started because jcampbell claimed that NPV was derived from the sum
of future dividends. (Actually, he claimed that stock price was NPV of those
future dividends.) No one here seems to be disputing that stock has a NPV.
They're disputing jcampbell's claim that NPV is derived exclusively from
future dividends.

You're arguing against a claim that no one is making.

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joshu
i think we have a disconnect.

what do you think an npv of a stock is?

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dpark
The sum of all the cash flows related to the stock (discounted for time).
Dividends are not the only factor there. For most investors and most stock,
the future sale price (i.e. when I sell my share) is the major factor, and any
dividends are a minor factor.

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joshu
When you sell your share, someone else buys it. How do THEY value it?

someday in the distant future, the stock is going to pay a dividend. cash
flows are what enable them to do it. eventually the company has nothing to do
with the cash but to pay it out.

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dpark
They might value it by expecting dividends, or they might value it by
expecting the share price to grow, or they might value it by expecting a
profitable acquisition. Hell, they might buy it hoping the company will
liquidate and disburse its holdings. Dividends are only one possible payout
that can come from buying stock.

You and jcampbell are making the same mistake. You're looking at dividends,
seeing a reasonable explanation for stock pricing, and then simply asserting
that what's reasonable must be true. But it's not true. A ton of things factor
into stock pricing and value. Some are rational, like attempting to estimate
the future value of dividends or an acquisition. Some are irrational, like
assuming that upward trajectory will continue "just because". And others are
in the middle, like believing that timing the market is possible.

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joshu
Unfortunately, I am perhaps summarizing too aggressively. And this format does
not really lend itself to a discussion.

Companies make money. They either pay out the revenue as dividends or invest
in the company. Eventually, they are unable to invest in the company, at which
point the revenue leaves the company in the form of dividends.

I'm not saying that people don't have a variety of reasons for thinking the
stock will move or be worth more or less.

My point is that the UNDERLYING VALUE of the stock is that it represents a
future revenue stream. The reason the price moves up or down is due to supply
and demand actually changing. And the reason that happens is that some subset
of people think that the stock is under or overpriced.

Thinking that the stock price represents anything other than the aggregate
opinion of the value of the stock is going to be difficult unless you want to
deny the efficient markets hypothesis.

(I actually spent years as an algorithmic trader. But what do I know?)

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dpark
I generally agree with what you've written there. I think we're mostly arguing
shades of gray.

On the topic of the efficient market hypothesis, there was a paper published a
while back that purportedly disproved the hypothesis in the general case
(basically, the potential number of data points can grow larger than the
available computational/cognitive power of the market). I'll see if I can dig
that up later. I think specific cases could potentially still hold, though, at
least theoretically.

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joshu
A long time ago someone came to present a paper to us that showed that people
trading without information (eg momentum traders you mentioned above) impact
the stock price much less than those trading with information. So I suspect
that the more people know the more efficiently they themselves move the
market. This might solve the "too much information" paradox you mention...

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Maven911
I applaud them for making sure their own ownership of the company is not
diluted, which is something I wish more founders were able to demand when they
seek financing.

On the other hand, to me it seems like the main goal is to be able to provide
RSUs and stock grants to employees without the right to vote, which I think is
not right.

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davidw
> On the other hand, to me it seems like the main goal is to be able to
> provide RSUs and stock grants to employees without the right to vote, which
> I think is not right.

Well, it doesn't sound very good to me either, but luckily, a great many of
their employees are extremely highly skilled individuals who can easily find
work with other employers, should they not like the conditions.

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dpark
Obviously employee mobility means an employer can do nothing wrong...

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davidw
You're taking what I said and making a very black and white statement from it,
which does nothing to further a good discussion of the subject.

We're not talking about inhumane working conditions here, backbreaking labor,
or an employer risking people's lives to make some extra bucks.

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dpark
You're trying to make a false distinction between small immoralities and big
immoralities. If Google is doing something immoral with respect to its
employees, the fact that those employees can depart is irrelevant. Employee
freedom does not neutralize employer immoralities, no matter what the size of
those immoralities.

Now, if you want to argue that what Google is doing is not immoral, then fair
enough. I might even agree with you. But if we're taking it as a given that
this action is wrong, then employee freedom doesn't make it right.

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davidw
Exposing someone to danger because you're too cheap to pay for proper safety
is what I'd consider immoral.

Not offering employees a certain class of shares is maybe lame, but not in the
slightest what I consider immoral.

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dpark
That's reasonable.

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mason55
The new shares will be non-voting and trade under a new symbol. Sergey and
Larry will be required to sell voting shares when then sell.

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mfringel
So Google admits that their current common shares are nominally non-voting by
creating additional common shares that are _actually_ non-voting.

As long as they don't pull a Yahoo, that should work out for them.

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yay_cloud
I think it's important for people to realize that this is NOT a dividend
scenario. No GOOG investor will gain value because of this transaction -- in
fact, each GOOG investor will lose value (voting power) because of this
transaction.

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dpark
Each owner of GOOG will have exactly as many votes after this "dividend". They
will not be negatively affected. New employees and acquisitions will be
negatively affected by receiving stock sans voting rights, though.

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sukuriant
Wait, I'm a bit confused. Does this mean that I'm going to have X shares in
GOOG and X shares in $newSymbol, and val(X)*2 = former stock price for GOOG?
Or, will I retain X shares in GOOG and this new option will exist that will
probably reduce the worth of my X shares.

Obvious disclaimer: I have stock in GOOG

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dpark
If you have X shares of GOOG worth $Y, then after the split you'll have X
shares of GOOG and X shares of GO2 (incidentally, this would be a cool ticker
if they could get it). Your X shares of GOOG and X shares of GO2 would
theoretically be worth $Y/2 each, but more likely, the value will be skewed
slightly toward GOOG shares being higher.

The actual price of your shares will be determined by the market, but you can
expect that the total value of your stock should be fairly comparable after
the split.

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loverobots
dpark, other than maybe voting rights, isn't it the same as if Google doubled
their Goog shares?

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dpark
Yes. Aside from voting rights, it's exactly that. It's hard to predict what
the market will do in the face of the voting rights issue, though.

Berkshire Hathaway has a similar split between A and B stock, but they have an
automated process in place to keep the prices in parity that involves
converting A stock into B stock. They don't actually handle about the reverse,
so B stock can indeed trade under parity. It's lower price (~1/30th of A
stock, typically) means a greater demand, though, since relatively few people
are buying A stock at $120k.

