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Can someone then explain to a layman, why Google shares even have any value? What good is a share, if it's voting power in controlling the company is practicall

Can someone then explain to a layman, why Google shares even have any value? What good is a share, if it's voting power in controlling the company is practically void? Google has never paid any dividend either. Are all the stock investors just speculating that GOOG will pay dividend in the future? Or is it possible that Class B shares will loose their special voting rights at some point so that Class A become instrumental in controlling the company?

junto 13y ago
As long as people perceive value then there is value. I think it is as simple as that. Maybe people are waiting on dividends. Snigger...
ChuckMcM 13y ago
GOOG shares have value because the company has value. They represent a fraction of that value but not an equivalent fraction of management control. Class B shares will eventually all be class A, Eric has converted a tremendous number of his already (they convert when you sell them, its possible they convert on change of ownership which would change them when they were inherited). So fractional ownership represents the fraction of what someone might have to pay to have full ownership.
Cthulhu_ 13y ago
Well if you take away dividends and voting rights, what remains? I can think of two things: One, money for Google, at least when they were distributed shares (I don't know if they distribute more from time to time). Two, a tradeable product. Price determined by supply and demand, supply / demand generated by people wanting to bet the price goes up and people cashing in. Think Bitcoins.
- cell303 13y ago
  I just have to ask. If it really is that way, what would prevent the maintainers of open source projects to issue (more or less worthless) "shares" of their projects? Could this be a way to pay open source developers?
  - neotek 13y ago
    Issuing shares to the public (that is to say, not to a restricted group of sophisticated investors) is far more difficult and expensive than just taking donations. Here in Australia a proprietary company can't take investment from (or even offer the opportunity to) more than 20 people in a 12 month period, can't have more than 50 non-employee shareholders, and the people you make the offer to have to be classified as "sophisticated" investors (which is a specific term that basically boils down to having a lot of money and thus probably not being naive to the way investments work.) If you exceed those thresholds then you have to register a prospectus with the Australian Securities and Investment Commission and there are mountains of guidelines, laws, and red tape to wade through to meet all the criteria in the Corporations Act. It would be far better for OS projects to sell upgrades to their software (to avoid having the complications surrounding donations) for a nominal fee, even if the upgrade is open source as well. The motivation to pay for the upgrade would be to keep the project alive rather than get the benefit of the upgrade. It's like reddit gold, it doesn't do anything I can't already do with reddit enhancement suite for free, but I renew my gold subscription every year because I appreciate reddit and want to see it continue (Eternal September aside.)
  - deleted 13y ago
    [deleted]
judk 13y ago
Like Apple, Google may eventually earn more that it can spend/invest, and then pay a dividend, or be bought back by Google corp.
- riffraff 13y ago
  could google corp have any interest in a buy back, if the exiting stock costs them nothing cause they pay no dividend?
PhasmaFelis 13y ago
As with every company that maintains 51% private ownership, they have value because in the future someone might buy them from you for more than what you paid for them. Or, to put it another way, they have value because people will pay for them, and people will pay for them because they have value. Isn't finance ridiculous?
- fennecfoxen 13y ago
  Well. Some people, like hedge funds or hypothetical corporate-takeovers, will always be interested in paying for them because it's a way to turn money (sitting around) into more money (in the form of a stream of income) - whether through a full-on acquisition, stock buybacks, or due to dividends. Assuming they get a good enough price, naturally. Other people will pay for them because the first group will pay for them. That's not ridiculous, that's just a transitive property of things being worth money. It's only a problem and a bubble insofar as this group's enthusiasm overwhelms the first group's.
thearn4 13y ago
I guess it would still have value for those who want to go long, and sell at a higher stock price.
- mcguire 13y ago
  This is typically termed the "greater-fool theory".
RodericDay 13y ago
It's a betting game, upheld by the assumption that as bad as it is, it is the best method we've got to determine the 'value' of a thing (you reach some interesting philosophical questions very quickly this way). John C. Bogle has written angrily at length about this many times in the past. I don't know enough to say whether I agree with him or not, but "The Battle for the Soul of Capitalism" was a fun read. He basically pushes forward his thesis that many problems related to corporations and corruption have to do with a transition from "shareholder capitalism" to "manager capitalism". I read it so long ago that I'm distorting things, but I will always remember that it was way better than the stupid title made it seem.
- eru 13y ago
  > [...] a transition from "shareholder capitalism" to "manager capitalism". Essentially, owner operated companies work better than manager operated companies. On average. Look up `principal agent problem' for more literature.
neotek 13y ago
Well, there's always capital gains when you sell. I'd say investors aren't buying Google stock because they want to control the company, they're buying Google stock because the people who do control the company are doing a good job.
yetanotherphd 13y ago
It's extremely simple: The only real value a share has is dividends, and dividend-like things (like share buybacks, the whole company being taken private, etc.). In theory (and practice) the price of a stock is the expected value of the time-discounted sum of its future dividends. So yes, people are precisely buying GOOG stock because they believe that at some point in the future, they will pay dividends. Google do, after all, have to do something with all their money one day. Voting is also not very important. In some cases it might be needed to keep the board/executives in line, but for an individual shareholder, the right to vote is of no importance.
- lutusp 13y ago
  > The only real value a share has is dividends, and dividend-like things (like share buybacks, the whole company being taken private, etc.). This omits the value of the share itself, as a commodity on the open market. If your claim were true, people would refuse to invest in shares that don't pay dividends. The primary reason to invest in shares is that they they might grow along with the (a) market as a whole, and (b) the company that issued the shares. Dividends are frosting. > So yes, people are precisely buying GOOG stock because they believe that at some point in the future, they will pay dividends. With all respect, do you really want to be pontificating about something you know nothing about? There are plenty of companies that don't pay dividends at all, never have, and yet have many loyal investors, for the best of reasons -- the company is growing along with the value of its stock. Instead of paying dividends, many companies put corporate profits directly back into company expenses, with the expectation that this will grow the company and its stock. And the investors agree.
  - yetanotherphd 13y ago
    You are correct about the empirical facts (there exist some companies don't currently pay dividends), but theory is needed to understand that if those company's never paid dividends, they would be worthless. The fundamental principal is that of the transversality condition, also called the "no ponzi" condition, which states that assets must eventually deliver. If a company pays no dividends forever then the value of its stock is only based on what people are willing to pay in the future, forming a self-reinforcing ponzi-like system. It is generally assumed (I can think of many good reasons for this, like the finiteness of the universe) that such violations of the transversality condition don't occur. Therefore the value of a share is the expected value of all future dividends. I suspect you also didn't read my post carefully and missed my qualification of "dividend-like" things. E.g. a company might start small, grow, stagnate and be bought by a private equity firm and split into parts that are sold off. At that point, the company has effectively delivered dividends to the private equity firm. >With all respect, do you really want to be pontificating about something you know nothing about? Your smugness is unwarranted and reflects badly on your character. I suggest you read some books on economics and try to be a better person.

junto 13y ago

As long as people perceive value then there is value. I think it is as simple as that. Maybe people are waiting on dividends. Snigger...

ChuckMcM 13y ago

GOOG shares have value because the company has value. They represent a fraction of that value but not an equivalent fraction of management control. Class B shares will eventually all be class A, Eric has converted a tremendous number of his already (they convert when you sell them, its possible they convert on change of ownership which would change them when they were inherited). So fractional ownership represents the fraction of what someone might have to pay to have full ownership.

Cthulhu_ 13y ago

Well if you take away dividends and voting rights, what remains? I can think of two things: One, money for Google, at least when they were distributed shares (I don't know if they distribute more from time to time). Two, a tradeable product. Price determined by supply and demand, supply / demand generated by people wanting to bet the price goes up and people cashing in. Think Bitcoins.

cell303 13y ago
I just have to ask. If it really is that way, what would prevent the maintainers of open source projects to issue (more or less worthless) "shares" of their projects? Could this be a way to pay open source developers?
- neotek 13y ago
  Issuing shares to the public (that is to say, not to a restricted group of sophisticated investors) is far more difficult and expensive than just taking donations. Here in Australia a proprietary company can't take investment from (or even offer the opportunity to) more than 20 people in a 12 month period, can't have more than 50 non-employee shareholders, and the people you make the offer to have to be classified as "sophisticated" investors (which is a specific term that basically boils down to having a lot of money and thus probably not being naive to the way investments work.) If you exceed those thresholds then you have to register a prospectus with the Australian Securities and Investment Commission and there are mountains of guidelines, laws, and red tape to wade through to meet all the criteria in the Corporations Act. It would be far better for OS projects to sell upgrades to their software (to avoid having the complications surrounding donations) for a nominal fee, even if the upgrade is open source as well. The motivation to pay for the upgrade would be to keep the project alive rather than get the benefit of the upgrade. It's like reddit gold, it doesn't do anything I can't already do with reddit enhancement suite for free, but I renew my gold subscription every year because I appreciate reddit and want to see it continue (Eternal September aside.)
- deleted 13y ago
  [deleted]

judk 13y ago

Like Apple, Google may eventually earn more that it can spend/invest, and then pay a dividend, or be bought back by Google corp.

riffraff 13y ago
could google corp have any interest in a buy back, if the exiting stock costs them nothing cause they pay no dividend?

PhasmaFelis 13y ago

As with every company that maintains 51% private ownership, they have value because in the future someone might buy them from you for more than what you paid for them. Or, to put it another way, they have value because people will pay for them, and people will pay for them because they have value. Isn't finance ridiculous?

fennecfoxen 13y ago
Well. Some people, like hedge funds or hypothetical corporate-takeovers, will always be interested in paying for them because it's a way to turn money (sitting around) into more money (in the form of a stream of income) - whether through a full-on acquisition, stock buybacks, or due to dividends. Assuming they get a good enough price, naturally. Other people will pay for them because the first group will pay for them. That's not ridiculous, that's just a transitive property of things being worth money. It's only a problem and a bubble insofar as this group's enthusiasm overwhelms the first group's.

thearn4 13y ago

I guess it would still have value for those who want to go long, and sell at a higher stock price.

mcguire 13y ago
This is typically termed the "greater-fool theory".

RodericDay 13y ago

It's a betting game, upheld by the assumption that as bad as it is, it is the best method we've got to determine the 'value' of a thing (you reach some interesting philosophical questions very quickly this way). John C. Bogle has written angrily at length about this many times in the past. I don't know enough to say whether I agree with him or not, but "The Battle for the Soul of Capitalism" was a fun read. He basically pushes forward his thesis that many problems related to corporations and corruption have to do with a transition from "shareholder capitalism" to "manager capitalism". I read it so long ago that I'm distorting things, but I will always remember that it was way better than the stupid title made it seem.

eru 13y ago
> [...] a transition from "shareholder capitalism" to "manager capitalism". Essentially, owner operated companies work better than manager operated companies. On average. Look up `principal agent problem' for more literature.

neotek 13y ago

Well, there's always capital gains when you sell. I'd say investors aren't buying Google stock because they want to control the company, they're buying Google stock because the people who do control the company are doing a good job.

yetanotherphd 13y ago

It's extremely simple: The only real value a share has is dividends, and dividend-like things (like share buybacks, the whole company being taken private, etc.). In theory (and practice) the price of a stock is the expected value of the time-discounted sum of its future dividends. So yes, people are precisely buying GOOG stock because they believe that at some point in the future, they will pay dividends. Google do, after all, have to do something with all their money one day. Voting is also not very important. In some cases it might be needed to keep the board/executives in line, but for an individual shareholder, the right to vote is of no importance.

lutusp 13y ago
> The only real value a share has is dividends, and dividend-like things (like share buybacks, the whole company being taken private, etc.). This omits the value of the share itself, as a commodity on the open market. If your claim were true, people would refuse to invest in shares that don't pay dividends. The primary reason to invest in shares is that they they might grow along with the (a) market as a whole, and (b) the company that issued the shares. Dividends are frosting. > So yes, people are precisely buying GOOG stock because they believe that at some point in the future, they will pay dividends. With all respect, do you really want to be pontificating about something you know nothing about? There are plenty of companies that don't pay dividends at all, never have, and yet have many loyal investors, for the best of reasons -- the company is growing along with the value of its stock. Instead of paying dividends, many companies put corporate profits directly back into company expenses, with the expectation that this will grow the company and its stock. And the investors agree.
- yetanotherphd 13y ago
  You are correct about the empirical facts (there exist some companies don't currently pay dividends), but theory is needed to understand that if those company's never paid dividends, they would be worthless. The fundamental principal is that of the transversality condition, also called the "no ponzi" condition, which states that assets must eventually deliver. If a company pays no dividends forever then the value of its stock is only based on what people are willing to pay in the future, forming a self-reinforcing ponzi-like system. It is generally assumed (I can think of many good reasons for this, like the finiteness of the universe) that such violations of the transversality condition don't occur. Therefore the value of a share is the expected value of all future dividends. I suspect you also didn't read my post carefully and missed my qualification of "dividend-like" things. E.g. a company might start small, grow, stagnate and be bought by a private equity firm and split into parts that are sold off. At that point, the company has effectively delivered dividends to the private equity firm. >With all respect, do you really want to be pontificating about something you know nothing about? Your smugness is unwarranted and reflects badly on your character. I suggest you read some books on economics and try to be a better person.