Google’s share price crossed $1,000 for the first time on Friday, surging past the milestone on optimism about its latest earnings report and its mobile ambitions. At current prices, Google (GOOG)‘s market cap is the third-highest in the U.S.Ever since its 2004 initial public offering at $85 a share, Google has never split its stock. Not once. One share bought then is still one share now. GOOG skyrocketed from the beginning, and talk of whether management should split the shares followed soon after.
One good problem for Google: With a share price of $1,000, the stock is too high to be included in the Dow Jones industrial average. (Yes, the Dow is a stodgy index and not the go-to market indicator for Wall Street pros. But as antiquated as the index happens to be, it still has cachet with the broader American public and remains by far the most-cited index in any mass media publication.)
The Dow is a price-weighted index. The higher a company’s share price, the more weight it has in the index. It’s as simple as that. Market value doesn’t matter because back when dinosaurs roamed the earth, the Dow Jones industrial average was created for easy math. Each company’s share price was all you needed to know—no computers needed. Pen and paper would be good enough to get from the prices of the components to the index average. Also helping make the math easier was the 12-company limit in the original index, not 30 like today. Can you say hello to the Distilling & Cattle Feeding Co.?
The most heavily weighted company in today’s Dow 30 is Visa (V), and that’s because its share price is $200. In reality, Visa is by far the smallest company in the index, with annual sales of $11 billion. That’s less than half the revenue of the second-smallest company, Nike (NKE), and nowhere near the $472 billion that Wal-Mart Stores (WMT) brings in annually.