What is Alphabet Stock?

The stock to a company's finance is like a cell is to the human body–it is the crux of finance of a company. Every organization needs funds to function. Until the organization decides to arrange for the same privately, it remains a privately held company. However, once it decides to bring in funds from the general public, it becomes a public limited company. The funds thus collected are known as the common stock of the company.

Alphabet stock is a kind of common stock. Before we understand the alphabet stock, let’s decode common stock.

What is common stock?

Common stock is the capital or the funds raised by the company by issuing shares. These shares have the literal meaning of owning a claim either on the company's profits or in the voting rights in company policies. It may also mean a representation on the company's board of directors. These kinds of shares all together form the common stock of the company.

Debt holders, preference shareholders, and other bondholders of the organization receive payment before the owners of common stock in the event of liquidating a company. Nevertheless, more risk entails more returns. The common stockholders benefit as long as they are entitled to a share in the company's profit. Thus, they also become participants in its overall growth benefits.

There are various classifications of the common stock depending on the functioning of that particular stock, viz. Growth, dividend, hybrid, and more.

Even though the alphabet stock is a common stock classification, it is quite different from the common stock itself.

What is Alphabet Stock?

It is a type of common stock representing its stake in one of its subsidiary companies. Alphabet stock exists due to the parent company acquiring a subsidiary. However, the parent company lets the subsidiary company maintain its status. The stake which the parent company then holds in the profits and voting of the subsidiary company is known as alphabet stock.

The voting rights and dividend sharing of the alphabet stock may differ from the parent company's stock. It is entirely dependent on the acquiring terms between the two companies. Similarly, the decision to keep it under private ownership or publicly trade it remains with the parent company.

Generally, companies with a large alphabet stock have a complex capital structure. It entails that it has a massive number of subsidiaries. The treatment of the alphabet stock can be different for every subsidiary.

Example of Alphabet stock

Alphabet Inc was constituted in 2014 as the parent company of Google Inc. which reclassified its original shares under the ticker name GOOG to GOOGL Class A shares with one voting right. However, a new class of shares, GOOG, was created as Class C shares with no voting rights. This ensured that the original company voting rights remained intact and the founder's interests were protected in the organization.

Currently, both the shares of Alphabet Inc trade on NASDAQ at similar prices. However, the same might not be the case for every other Alphabet stock. It depends on the subsidiary company's listing and how the parent company deals with the alphabet stock.

The company has the following share classes now:

Class A shares: GOOGL. Their voting right is one vote for one share. They trade on the NASDAQ.

Class C shares: GOOG. They have no voting rights. They, too, trade on the NASDAQ.

Class B shares: Super voting shares. They are not available for trade on the secondary market. Google insiders and early investors own them.

Special Considerations

The alphabet stock is called so due to the terminology it uses. A period and a letter are added to the parent's company's stock name to denote an alphabet stock.

For example, if ABC is the common stock of the company. ABC. A or ABC.B may be the way to denote the alphabet stock.

There is also no strict rule about separating voting rights among the classes of alphabet shares. However, two alphabet stocks might have different dividends and voting rights.

Conclusion

The acquisition or expansion of one company by another creates Alphabet stock. Sometimes, it remains the same piece of stock as it was in the subsidiary company. At other times, it might change the privileges it has to offer. Every buyer needs to check the benefits and rights of the same before buying the right stock.