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Relevant information: Alphabet: GOOG (non-voting class C) closed Friday at a 2.8% discount from GOOGL (1x voting class A) Zillow: Z (non-voting class C) close

Relevant information: Alphabet: GOOG (non-voting class C) closed Friday at a 2.8% discount from GOOGL (1x voting class A) Zillow: Z (non-voting class C) closed Friday at 1.1% discount from ZG (voting class A).

nradov 10y ago
Voting rights are nearly worthless in practical terms until you own enough shares to demand a board seat, at which point voting rights become worth a lot. It's almost a step function.
tuna-piano 10y ago
This is very interesting for me to think about. Perhaps someone smarter can explain what this means and answer some questions. A. On Google finance [1,2], it shows that both GOOG and GOOGL have a market cap of $565B. There is a difference in share price, but also a difference in the number of shares outstanding. Is this correct or a google finance mistake / confusing point? B. Assuming the discount for the non-voting shares is as you mentioned it, does this mean that shareholders value their vote for google at ~2.5x their vote for Zillow? C. At 2.8% of Google's market cap, that would mean Google's shareholders value voting rights for google at $15B - a huge amount. What votes does the market see that's worth $15B? D. It's an often stated point that the stock market and Wall Street focus on short term earnings, at the expense of long term results - and that the management would be more successful in the long term if they didn't have pressure from Wall Street. Does the discount for non-voting shares help determine if this point is true or not? 1. https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4onYBA https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4o... 2. https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4onYBA https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4on...
- GeneralMayhem 10y ago
  I'm no expert, just a man with a calculator, but I'll take a stab. A. Do the multiplication - each share class only accounts for about half the market cap, so presumably Google Finance (or its source) knows that GOOG and GOOGL are the same company and sums them. I don't know why Z/ZG don't have the same property, though. B. I don't think the per-share spread is particularly illuminating here, because the distribution of outstanding shares between voting and nonvoting is different for each company (if there are relatively few voting shares, then I would expect the per-share spread to be higher proportionally, since each vote is more valuable). I'd be more interested in the total price of all votes - calculated as: (((price per voting share) - (price per non-voting share)) * (# of voting shares)) as a percentage of overall market cap: Google: $6.8B / $565.7B = 1.2% Zillow: $23.3M / $6.59B = 0.35% so I'd say investors actually value voting in Google at about 3.5x their vote in Zillow, proportional to overall company value. I'd be somewhat interested to see if this metric correlates with things like P/E ratio (e.g., are investors more or less interested in voting rights in fast-growing companies?), founder share status (e.g., does a high Google vote price mean that investors think the founders are more likely to cede their majority stake?), etc., or if it's just a case-by-case thing (e.g., due to liquidity issues like the other response talked about with CMG). C. That number should be "only" about 6.8B (per-share premium * number of shares of GOOGL); parent's calculation roughly double-counts the value of the vote (not exactly double since there are more shares of GOOG than GOOGL). Total control over Google would be immensely valuable - worth much, much more than $7B - so presumably the difference that large investors are willing to pay is based on a probability distribution of how many shares one would expect to need to control to have any influence on the board, weighted by what that influence would actually be worth (presumably fairly little, since Page/Brin/Schmidt hold a controlling majority of votes). The marginal value per vote is also different depending on how many you have - for an average investor, it's probably zero; for the institution trying to muscle its way onto the board, it's probably much more than $26/vote. D. This reads like a college essay question, and I feel like you have an answer in mind, but it's not immediately obvious to me what the two have to do with each other.
- patio11 10y ago
  A: Market capitalization is of an enterprise, not of a share class. B: I think you're overthinking this a little bit. C: GOOG and GOOGL have subtle differences between them beyond just the voting rights. For example, GOOG != GOOGL. If you have a contract which obligates you to give someone a share of GOOG, a share of GOOGL does not settle that contract. There are some liquidity-related problems, as there is substantial retail interest in Google and retail traders generally disproportionately have access only to one share class. One of my favorite examples for this: back in the day, there were two classes of Chipotle, CMG and CMG.B. They were identical in every way except CMG.B had 5x the voting rights. Which traded at a discount to which? Answer: CMG.B routinely traded at a 10% discount. That's either enough to shake one's faith in the efficient markets hypothesis or it's a powerful illustration that in the short run market microstructure matters A LOT. (I had originally become a shareholder in the A class and started buying B after I was aware of the mispricing. That worked out pretty well. I was far from the only person who realized this, but it was impossible to arbitrage away the difference profitably due to overwhelming short interest in CMG, which meant the cost of borrowing CMG to buy CMG.B and holding them to convergence was untenable. Eventually, some larger institutional buyers just crowded into CMG.B and voted to convert the B shares on a 1:1 basis to the A shares, immediately cutting off their voting power and realizing massive gains.)

nradov 10y ago

Voting rights are nearly worthless in practical terms until you own enough shares to demand a board seat, at which point voting rights become worth a lot. It's almost a step function.

tuna-piano 10y ago

This is very interesting for me to think about. Perhaps someone smarter can explain what this means and answer some questions. A. On Google finance [1,2], it shows that both GOOG and GOOGL have a market cap of $565B. There is a difference in share price, but also a difference in the number of shares outstanding. Is this correct or a google finance mistake / confusing point? B. Assuming the discount for the non-voting shares is as you mentioned it, does this mean that shareholders value their vote for google at ~2.5x their vote for Zillow? C. At 2.8% of Google's market cap, that would mean Google's shareholders value voting rights for google at $15B - a huge amount. What votes does the market see that's worth $15B? D. It's an often stated point that the stock market and Wall Street focus on short term earnings, at the expense of long term results - and that the management would be more successful in the long term if they didn't have pressure from Wall Street. Does the discount for non-voting shares help determine if this point is true or not? 1. https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4onYBA https://www.google.com/finance?q=googl&ei=_qd9WJG8BoKdugSE4o... 2. https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4onYBA https://www.google.com/finance?q=goog&ei=Wad9WIn8N4KdugSE4on...

GeneralMayhem 10y ago
I'm no expert, just a man with a calculator, but I'll take a stab. A. Do the multiplication - each share class only accounts for about half the market cap, so presumably Google Finance (or its source) knows that GOOG and GOOGL are the same company and sums them. I don't know why Z/ZG don't have the same property, though. B. I don't think the per-share spread is particularly illuminating here, because the distribution of outstanding shares between voting and nonvoting is different for each company (if there are relatively few voting shares, then I would expect the per-share spread to be higher proportionally, since each vote is more valuable). I'd be more interested in the total price of all votes - calculated as: (((price per voting share) - (price per non-voting share)) * (# of voting shares)) as a percentage of overall market cap: Google: $6.8B / $565.7B = 1.2% Zillow: $23.3M / $6.59B = 0.35% so I'd say investors actually value voting in Google at about 3.5x their vote in Zillow, proportional to overall company value. I'd be somewhat interested to see if this metric correlates with things like P/E ratio (e.g., are investors more or less interested in voting rights in fast-growing companies?), founder share status (e.g., does a high Google vote price mean that investors think the founders are more likely to cede their majority stake?), etc., or if it's just a case-by-case thing (e.g., due to liquidity issues like the other response talked about with CMG). C. That number should be "only" about 6.8B (per-share premium * number of shares of GOOGL); parent's calculation roughly double-counts the value of the vote (not exactly double since there are more shares of GOOG than GOOGL). Total control over Google would be immensely valuable - worth much, much more than $7B - so presumably the difference that large investors are willing to pay is based on a probability distribution of how many shares one would expect to need to control to have any influence on the board, weighted by what that influence would actually be worth (presumably fairly little, since Page/Brin/Schmidt hold a controlling majority of votes). The marginal value per vote is also different depending on how many you have - for an average investor, it's probably zero; for the institution trying to muscle its way onto the board, it's probably much more than $26/vote. D. This reads like a college essay question, and I feel like you have an answer in mind, but it's not immediately obvious to me what the two have to do with each other.
patio11 10y ago
A: Market capitalization is of an enterprise, not of a share class. B: I think you're overthinking this a little bit. C: GOOG and GOOGL have subtle differences between them beyond just the voting rights. For example, GOOG != GOOGL. If you have a contract which obligates you to give someone a share of GOOG, a share of GOOGL does not settle that contract. There are some liquidity-related problems, as there is substantial retail interest in Google and retail traders generally disproportionately have access only to one share class. One of my favorite examples for this: back in the day, there were two classes of Chipotle, CMG and CMG.B. They were identical in every way except CMG.B had 5x the voting rights. Which traded at a discount to which? Answer: CMG.B routinely traded at a 10% discount. That's either enough to shake one's faith in the efficient markets hypothesis or it's a powerful illustration that in the short run market microstructure matters A LOT. (I had originally become a shareholder in the A class and started buying B after I was aware of the mispricing. That worked out pretty well. I was far from the only person who realized this, but it was impossible to arbitrage away the difference profitably due to overwhelming short interest in CMG, which meant the cost of borrowing CMG to buy CMG.B and holding them to convergence was untenable. Eventually, some larger institutional buyers just crowded into CMG.B and voted to convert the B shares on a 1:1 basis to the A shares, immediately cutting off their voting power and realizing massive gains.)