What's the Difference Between GOOG and GOOGL?

When it comes to investing in tech giants like Alphabet (the company formerly known as Google), you may have noticed the two stock ticker symbols - GOOG and GOOGL. But what exactly is the difference between these two share classes? Understanding this distinction is crucial for investors seeking to make informed decisions about their portfolios.

Key Takeaways

• GOOG and GOOGL are the two publicly traded share classes of Alphabet, the parent company of Google.
• GOOGL shares are Class A common stock, which have one vote per share; GOOG shares are Class C non-voting stock.
• The dual-class structure allows Alphabet's founders and insiders to maintain control over the company's decision-making through their ownership of Class B shares.
• GOOG shares typically trade at a slight discount to GOOGL due to the lack of voting rights.
• Investors should consider their preferences for voting rights and control when choosing between GOOG and GOOGL.

Understanding Alphabet's Multi-Class Stock Structure

Alphabet, the parent company of Google, has a unique stock structure that sets it apart from traditional public companies. Unlike the typical single-class stock structure, Alphabet has implemented a multi-class stock system, with three distinct share classes: A, B, and C.

Alphabet's Three Share Classes: A, B, and C

The Alphabet Class A shares (GOOGL) and Class C shares (GOOG) are similar in many ways, except for one crucial difference: voting rights. Class A shares come with one vote per share, while Class C shares have no voting rights at all. On the other hand, Alphabet's Class B shares, which are held primarily by the company's founders and insiders, come with a staggering 10 votes per share.

The Purpose of Multiple Share Classes

The purpose of this multi-class stock structure is to allow Alphabet's founders and company insiders to maintain a strong grip on the company's decision-making, even as they open up the stock to public investment. This dual-class structure helps mitigate the risk of dilution of insider influence when a company offers new shares, ensuring that the founders and key stakeholders can preserve their control over the company's corporate governance and investor control.

"The multi-class stock structure allows Alphabet to reap the benefits of being a public company while preserving the founders' control over the company's strategic direction."

This unique alphabet stock structure and multi-class stock setup has been a subject of much debate, with some investors arguing that it undermines the principles of corporate governance and shareholder democracy. Nevertheless, Alphabet's founders have maintained that this approach is essential for the company's long-term success and innovation.

GOOGL: Alphabet's Class A Shares

Alphabet's GOOGL shares, also known as Class A shares or common stock, hold a significant place in the company's multi-class stock structure. Each GOOGL share is entitled to one vote, granting investors a voice in major corporate decisions like electing directors and voting on significant operational changes.

Approximately 79% of the Class A shares are held by institutional investors, while 31% are owned by individual shareholders. Although GOOGL shareholders have voting rights, their influence is somewhat limited compared to the founders and insiders who control the Class B shares, which carry 10 votes per share.

One Vote per Share

The GOOGL shares, as part of Alphabet's Class A stock, provide investors with one vote per share. This allows public shareholders to participate in the decision-making process and have a say in the company's direction.

Held by Public Investors and Institutions

The Class A GOOGL shares are primarily held by a diverse group of public investors, including individual shareholders and institutional investors such as mutual funds, hedge funds, and pension funds. This broad ownership structure ensures that the GOOGL shares are traded on public exchanges and are accessible to a wide range of investors.

"The voting rights associated with GOOGL shares allow public investors to influence key corporate decisions, albeit within the constraints of Alphabet's multi-class structure."

GOOG: Alphabet's Class C Shares

Alphabet's Class C shares, trading under the ticker symbol GOOG, represent a unique class of the company's stock. Unlike Alphabet's Class A shares (GOOGL), which grant shareholders one vote per share, Class C shares do not confer any voting rights. This distinction is crucial for investors to understand when considering their options in the Alphabet stock portfolio.

The primary purpose of Alphabet's Class C shares is to provide employees and some existing Class A shareholders with an equity-based compensation mechanism, without diluting the voting power of the company's founders and controlling shareholders. As a result, GOOG shares tend to trade at a modest discount compared to the voting Class A GOOGL shares, reflecting the lack of voting rights associated with the Class C stock.

For investors seeking ownership in Alphabet without the ability to influence corporate decisions, the GOOG Class C shares can be an attractive option. These non-voting shares offer exposure to the company's strong financial performance and growth potential, while limiting the investor's direct involvement in Alphabet's governance.

No Voting Rights

The key distinguishing factor between GOOG and GOOGL is the absence of voting rights for the Class C shares. Holders of GOOG stock do not have the ability to vote on corporate matters, such as the election of directors or major business decisions. This structure ensures that Alphabet's founders and controlling shareholders maintain a firm grip on the company's strategic direction and decision-making processes.

"The Class C shares allow Alphabet to raise capital and compensate employees without diluting the voting power of the founders and other Class B shareholders."

What is the Difference Between GOOG and GOOGL?

The primary difference between GOOG and GOOGL, the two share classes of Alphabet Inc., lies in their voting rights. GOOGL shares, also known as Class A shares, come with one vote per share, allowing their holders to have a say in major corporate decisions. In contrast, GOOG shares, or Class C shares, have no voting rights attached to them.

Despite this fundamental distinction, the stock prices of GOOG and GOOGL are often quite close to each other due to the potential for arbitrage opportunities. Both share classes represent an equal ownership stake in Alphabet, the parent company of Google. The key difference is the ability, or lack thereof, to influence the company's direction through voting rights.

The difference in voting rights between GOOG and GOOGL is a key consideration for investors who want to have a say in Alphabet's strategic decisions. While the stock prices may be similar, the ability to vote can be a significant factor in some investors' decision-making process.

"Voting rights are a crucial aspect of corporate governance, and the distinction between GOOG and GOOGL shares reflects Alphabet's unique approach to maintaining control while raising capital."

The Rationale Behind Alphabet's Stock Split

Alphabet's multi-class stock structure, which includes the creation of non-voting Class C shares, was designed to allow the company's founders, Larry Page and Sergey Brin, to maintain control over the business while still raising capital through public markets. The alphabet stock split in 2014 enabled Alphabet to issue new shares without diluting the founders' voting power, as the Class B shares held by Page, Brin, and other insiders retain 10 votes per share.

This unique multi-class structure allows Alphabet to take advantage of public-market liquidity while ensuring the founders' long-term control over the company's direction. By retaining their majority voting rights, Page and Brin can steer the company's strategy and decision-making, even as Alphabet raises capital and expands its shareholder base.

Maintaining Control for Founders

The founder control aspect of Alphabet's stock structure is a key part of the rationale behind the stock split. By issuing non-voting Class C shares, Alphabet was able to raise funds without diluting the voting power of the Class B shares held by Page, Brin, and other insiders.

Raising Capital Without Diluting Power

Alphabet's capital raising strategy through the stock split allows the company to access public markets and expand its ownership without compromising the founders' ability to guide the company's long-term vision. This approach has enabled Alphabet to finance its growth initiatives while maintaining the multi-class structure that preserves the founders' control.

Voting Rights and Their Significance

Voting rights play a crucial role in corporate governance, as they empower shareholders to influence major decisions made by the company. In the case of Alphabet, the parent company of Google, the Class A voting rights shares (GOOGL) give shareholders the ability to vote on important matters, such as the election of directors and approval of significant operational changes.

This voting power is significant, as it allows shareholders, particularly institutional investors, to press companies to enact shareholder-friendly initiatives that can ultimately boost stock prices. However, in Alphabet's unique structure, the founders' control through their Class B shares, which carry 10 votes per share, effectively limits the practical influence of GOOGL shareholders.

Influencing Corporate Decisions

The voting rights associated with GOOGL shares provide shareholders with a meaningful voice in the company's corporate governance. Shareholders can use their voting power to support or oppose the election of directors, as well as to approve or reject significant operational changes proposed by the company's leadership.

• Shareholders can advocate for policies and strategies that align with their interests, such as increasing dividends or implementing cost-cutting measures.
• Activist investors may leverage their voting power to push for changes that they believe will enhance the company's long-term performance and shareholder value.
• The ability to vote on critical decisions gives shareholders a tangible way to influence the direction of the company and hold management accountable.

However, Alphabet's multi-class stock structure, with the founders holding the majority of the voting power through their Class B shares, can limit the practical impact of GOOGL shareholders' voting rights. This raises important questions about the balance of power between founders, management, and public shareholders in corporate governance.

"Voting rights are a critical tool for shareholders to hold companies and their management accountable. In the case of Alphabet, the founders' control through the Class B shares highlights the need for a more balanced approach to corporate governance."

Investing in GOOG vs. GOOGL

For retail investors, the decision between investing in GOOG or GOOGL shares of Alphabet may come down to personal investment preferences. GOOGL shares, with their voting rights, may appeal to investors who want a degree of influence over corporate decisions, even if their individual voting power is limited. On the other hand, GOOG shares may be more attractive to passive investors who are primarily interested in the company's growth and performance without the need to participate in shareholder voting.

Ultimately, the two share classes have similar financial characteristics, and the choice between them may depend on an individual investor's investment goals and involvement in corporate governance. Retail investors should carefully consider their priorities and investment strategies when deciding between investing in GOOG or GOOGL.

Considerations for Retail Investors

• GOOGL shares offer voting rights, allowing investors to participate in corporate decision-making.
• GOOG shares are more suitable for passive investing strategies, as they do not provide voting rights.
• Both share classes have similar financial performance, with the primary difference being the voting rights.
• Retail investors should assess their investment goals and level of involvement in corporate governance when choosing between GOOG and GOOGL.

"The choice between GOOG and GOOGL may come down to an investor's desire for corporate governance involvement, rather than any significant financial differences between the two share classes."

Other Companies with Multi-Class Stocks

Alphabet, the parent company of Google, is not the only public corporation that has implemented a multi-class stock structure. Several other prominent companies have adopted similar models, allowing founders and insiders to maintain a tight grip on corporate control while opening up investment opportunities for the public.

One notable example is Meta Platforms Inc., the parent company of Facebook. Like Alphabet, Meta has a dual-class share structure, granting its founder, Mark Zuckerberg, significantly more voting power than regular public shareholders. Another company with a multi-class structure is Berkshire Hathaway Inc., the renowned investment conglomerate led by Warren Buffett, which has both Class A and Class B shares.

The list of public companies with multi-class stocks also includes Zoom Video Communications Inc., the video conferencing platform that gained widespread popularity during the COVID-19 pandemic. Zoom's dual-class structure enables its founder and CEO, Eric Yuan, to retain control over the company's strategic direction.

The prevalence of multi-class stock structures among public companies has been a subject of ongoing debate. While these structures allow founders and insiders to maintain control, some investors and corporate governance experts argue that they can create a separation between economic ownership and voting power, which may not align with the best interests of all shareholders.

"The separation of ownership and control is one of the defining characteristics of the modern public corporation."

Conclusion

The distinction between GOOG and GOOGL shares boils down to voting rights. GOOGL shares, Alphabet's Class A common stock, grant investors a voice in corporate decision-making, while GOOG shares, the Class C non-voting stock, do not. Alphabet's multi-class structure, which includes the Class B shares held by the founders, allows the company's leadership to maintain control even as it raises capital through public markets.

For investors, the choice between GOOG and GOOGL may depend on their investment objectives and level of interest in corporate governance, as the two share classes are otherwise financially equivalent. Understanding the nuances of Alphabet's stock structure is crucial for making informed investment decisions in this technology giant.

Ultimately, the differences between GOOG and GOOGL shares highlight the complex nature of Alphabet's corporate structure and the balance it strikes between public participation and founder control. As investors navigate the landscape of multi-class stocks, they must consider not only the financial performance but also the governance implications of their investment choices.