Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) stock has proved a terrific investment for those who bought it at its initial public offering (IPO) in August 2004 — when the company was then named Google — and held on for the long run.
So, just how great an investment has the tech giant and Google search engine owner been? Let’s take a look…
A less-than-golden start on the Nasdaq
On Thursday, Aug. 19, 2004, while American swimmers were capturing three gold medals at the Summer Olympics in Athens, Greece, things weren’t going as swimmingly for Google stock’s debut on the Nasdaq.
Despite much hype preceding the IPO, investors didn’t seem as keen on what was then strictly a search engine stock as management had hoped. The company ended up pricing shares at $85, the low end of its revised range of $85 to $95 — and that range was considerably lower than its original target of $108 to $135. Moreover, first-day trading action wasn’t nearly as hot as the summer weather in much of the country. Google stock opened at $100.00 — more than 17% higher than its offer price — and closed the day at $100.34, an 18% gain from the IPO price. This is a solid performance but not one befitting what I well remember was being touted as the hottest tech IPO since the dot-com bubble burst in 2000.
15 years later, IPO investors are sitting on golden gains
Every dollar invested in Google stock at its IPO price has turned into $30. Here’s how much various dollar amounts invested at the IPO would now be worth as of the market close on Nov. 22. (These figures take into account the company’s controversial 2014 stock split, which we’ll get to in a moment.)
|Dollar Amount Invested at Google’s 2004 IPO||Current Value of Shares Bought at IPO Price||Current Value of Shares Bought at High Price on IPO Day|
|$85 (1 share second column); $104.06 (1 share third column)||$2,589.01||$2,589.01|
|$32,831 (second column); $40,193 (third column)||$1,000,000||$1,000,000|
So, the answer to the headline question of how much money you’d have now if you invested $10,000 in Google’s IPO is more than $300,000! Now this is assuming you bought at the $85 IPO price — an unrealistic assumption for most folks. I’ve included a more realistic look at how much money you’d have now by assuming you bought the stock at the high end of its trading range on IPO day. In this case, there’s not a huge difference, but there are often massive differences in instances involving popular IPOs.
As for the stock split, in 2014, the company not only doubled the number of shares outstanding, but it also created a new class of shares, Class C shares, which have no voting power. Public shareholders received one Class C share for every Class A share (1 vote each) they owned, while insiders who owned Class B shares (10 votes each) also received one Class C share for each Class B share they owned. This unusual move was made so the company’s founders could split the stock and still retain their majority voting power. Class C shares began trading under the company’s original ticker symbol, GOOG, while the Class A shares began trading as GOOGL following the split.
At the time of the stock split, the company also restructured its business and changed its corporate name to Alphabet, with Google becoming its largest operating unit.
The stock split means that in order to calculate how much one share of Google bought at its IPO is worth today, we have to add the current share prices of the Class A ($1,293.67) and Class C ($1,295.34) shares. That gives us $2,589.01. By contrast, had you decided to plunk $85 in a fund that tracks the S&P 500, your investment would now be worth $332, as the index has returned 291% since Google’s IPO.
What’s been driving Alphabet stock’s performance?
In 15 years, Alphabet has become the third-largest stock, by market cap, trading on a U.S. stock exchange, trailing only Apple and Microsoft. That’s darn impressive when you consider that both of those companies have been around and publicly traded much longer, as the iPhone maker IPO’d in 1980 and the computer software behemoth followed in 1986.
What drove Alphabet’s fast entree into the mammoth-company club? Primarily, this powerful combo: the torrid growth of the internet + the company’s increasing share of the search engine market. This duo allowed Alphabet to…
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