Sometimes, even stocks that start out as big caps can drive massive returns.
This year marks 20 years since Alphabet (GOOGL 0.30%) (GOOG 0.33%)then known as Google, Inc., launched its IPO. The company faced significant regulatory scrutiny at that time, and the desire to launch its IPO at a higher price left the pressure, pushing the IPO price to a split-adjusted $2.13 per share.
Despite such challenges, the company evolved into a digital advertising juggernaut, and the profits generated from that business led Alphabet to acquire several other businesses. With this expansion, even an investor with a pre-split share has made huge gains over the past 20 years.
Alphabet’s share growth
Investors who bought a share in 2004 will now hold 40 shares – 20 shares with voting power under the symbol “GOOGL” and 20 that have no voting rights and trade under the symbol “GOOG”.
This is because the company initiated an unusual 2-for-1 stock split in 2014 when it created a third class of non-voting shares (only insiders own the second class of shares, known as “B” shares). In addition, each class of Alphabet shares will split 20 for 1 in 2022, which leads to the current weighting of the shares.
Consequently, this stake in Alphabet would yield a total return of just under $6,700 today, including the dividend that begins in the second quarter of 2024.
A key lesson from Alphabet’s IPO
Admittedly, that gain could disappoint compared to the lifetime gains of Amazonwhose share at the 1997 IPO is now worth about $34,000.
However, Amazon’s market capitalization was only about $450 million at the time, meaning it had already doubled roughly sixfold by the time it reached Alphabet’s IPO market capitalization of about $27 billion.
This distinction is important since, today, companies tend to launch IPOs when they have already reached large capitalization status. However, the example of Alphabet shows that it is not too late to earn a considerable profit from such a market capitalization. If one can apply these lessons to a future tech industry leader, massive returns are still possible.
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.