Alphabet split ends era of jumbo prices for megacaps

Investors wait to see if tech giants can live up to Wall Street profit expectations.
Image: David Paul Morris/Bloomberg

The days when investors had to shell out thousands of dollars to buy a single share of some of the world’s biggest technology companies are gone.

Alphabet Inc. closed the door on that era on Monday when its shares began trading in the $100 range after completing a 20-for-1 split, following the blueprint laid out by Amazon.com Inc. In premarket trading, the stock rose 1.6% to $113.61.

The companies billed the moves as a way to make their stocks more accessible for retail investors and that has been achieved. But so far the lower price tags have done little to lift stocks amid broader concerns about Federal Reserve interest rate hikes and cooling economic growth.

It’s still early, but Amazon has fallen 9% since completing its split last month. Even Shopify, the former high-flyer whose shares have dropped more than 70% this year, hasn’t been able to catch a bid. Its US shares are trading in the low $30s, down 5.4% since its 10-for-1 split took effect June 29.

The poor stock performance is a far cry from 2020, when Apple Inc. and Tesla Inc. shares went on to set record highs in the months after their splits. Investors in Google’s parent shouldn’t expect a return to that type of price action while macroeconomic risks swirl, said Kim Forrest, founder and chief investment officer at Bokeh Capital Partners.

“There are bigger concerns with what appears to be a recession starting,” Forrest said in an interview.

“It certainly does look like there are layoffs coming and even the really rich companies aren’t going to be able to avoid it.”

Stock splits are purely cosmetic — they do nothing more than redistribute a company’s equity over a larger number of shares. Individual investors, though, take them as a bullish sign that a company is optimistic about the outlook for its business, and a split announcement often triggers at least a brief jump in a stock.

Now, though, with the second-quarter earnings season under way, investors are focused on whether the technology giants can live up to Wall Street profit expectations that many see as overly optimistic. Estimates for Alphabet’s earnings this year have fallen just 0.8% over the past month despite a warning from Snap Inc. about macroeconomic headwinds hurting its ad business as well as a reduced forecast from Microsoft Corp. as a result of the strong US dollar.

Of course, there are other benefits that stock splits can bring, such as opening the door for giants like Alphabet and Amazon to gain entry to the Dow Jones Industrial Average, whose weighting is based on stock price rather than market value. Meanwhile, Alphabet and Amazon both still hold outsized sway over the S&P 500 Index due to their trillion-dollar market caps.

Tech chart of the day 

The Nasdaq Golden Dragon China Index has fallen 10% over the past three weeks, paring an almost 60% rally from its March low. China’s tech sector is once again dealing with the possibility of renewed regulatory crackdowns and a resurgence in Covid-19 lockdowns. The index slumped 8.5% last week, its biggest weekly drop since mid-April.

Top tech stories

  • China’s Contemporary Amperex Technology Co. Ltd., the world’s biggest maker of batteries for electric vehicles, is considering at least two locations in Mexico for a manufacturing plant to potentially supply Tesla Inc. and Ford Motor Co.
  • Deliveroo Plc slashed projections for sales growth this year after the value of transactions on its platform grew more slowly in the latest quarter, reflecting mounting challenges facing the delivery service’s consumers.
  • Amazon.com Inc.’s UK grocery business will match prices on hundreds of everyday items to those offered by rival Tesco Plc in an aggressive move against Britain’s largest supermarket chain.
  • Vodafone New Zealand is selling its mobile-phone tower assets to investment firms for NZ$1.7 billion ($1.1 billion).
    Strong demand for niche design services used in making electric vehicles has helped Tata Elxsi Ltd.’s stock surge by more than a third this year, even as inflation concerns have battered the sector globally.
  • “Stranger Things” is the most popular TV show of the year. Next week, we’ll find out if that’s enough to save Hollywood’s summer. Netflix Inc. will report results on Tuesday for its most recent quarter, and every one of its competitors is hoping for good news. Stocks across the industry have slumped ever since Netflix reported it lost customers in the first three months of the year.

© 2022 Bloomberg L.P.

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