Why Google and Its $1,000 Shares Will Never Crack the Dow

The lobby of Google's headquarters in Manhattan, NY Photograph by Yana Paskova/For The Washington Post via Getty Images

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‘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, 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, and nowhere near the $472 billion that Wal-Mart Stores brings in annually.

Currently, Visa represents more than 8 percent of the Dow. Consider, then, if Visa were replaced by Google in the index: The Internet giant would be 32 percent of the Dow all by itself.

Compare the current weightings of the Dow, which are evenly balanced for the most part …

… with what the weightings would be if Google were included, throwing any notion of balance out the window:

Obviously, the leadership at Google doesn’t feel the need to be included in the Dow 30 and would rather follow Warren Buffett’s approach of avoiding stock splits. Even without a presence in the Dow, getting its share price higher than $1,000 has given Google a new wave of publicity.

Barely any institutional money is invested against the Dow (about $30 billion) compared with trillions tracking the Standard & Poor’s 500-stock index. Perhaps Google has been right all along. If Visa, of all companies, is the most-weighted company in the Dow 30, maybe the index isn’t the best one to be concerned about anyway.

Getting to $1,000, $100 at a time

This year has marked the third time Google crossed a fresh $100 mark. In the first three years of being publicly traded, the stock quickly surpassed many big, round-number benchmarks before waiting out the 2008 financial crisis and ensuing recession and then making new highs:

Getting to $1,000 required more than a tenfold increase in the stock price, but getting to $2,000 will only require a double. Each successive $1,000 increase will be easier to achieve, speaking purely in percentage terms.

Only Priceline left to go

Google has the second-highest individual share price of any company in the S&P 500. Only these 12 companies have share prices higher than $300, including big tech names such as Apple, Amazon.com, and Netflix.

Google might top the chart as early as this week.

As companies continue to shy away from stock splits, the broader bull market may push share prices toward $1,000. Soon it’s possible we’ll see more than these two stocks with four-digit price tags.

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