Sometimes, even stocks that begin as large caps can drive massive returns.
This year marks 20 years since Alphabet (GOOGL 0.30%) (GOOG 0.33%), known then as Google, Inc., launched its IPO. The company faced significant regulatory scrutiny at that time, and a desire to launch its IPO at a higher price gave way to pressure, pushing the IPO price down 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 to Alphabet acquiring numerous other companies. With that expansion, even an investor with one pre-split share earned massive gains over the last 20 years.
The share growth of Alphabet
Investors who bought one share in 2004 would now hold 40 shares — 20 shares with voting power under the “GOOGL” symbol and 20 that do not have voting rights and trade under the “GOOG” symbol.
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). Also, each class of Alphabet stock split 20-for-1 in 2022, leading to the current weighting of shares.
Consequently, this holding in Alphabet would have yielded a total return of just under $6,700 today, including the dividend that began in the second quarter of 2024.
A key lesson of Alphabet’s IPO
Admittedly, that gain might disappoint compared to the lifetime gains of Amazon, whose one share at the 1997 IPO is now worth about $34,000.
However, Amazon’s market cap was only about $450 million at the time, meaning it had already doubled approximately six times when it reached Alphabet’s IPO market cap of about $27 billion.
This distinction is important since, today, companies tend to launch IPOs when they have already reached large-cap status. Nonetheless, the Alphabet example shows that it is not too late to earn considerable gains from such a market cap. 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, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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.
