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Comment by Analemma_ | Hacker News Reader

As someone not terribly well-versed in the jargon of the finance and stock market worlds, this was a pretty good article for helping me make sense of it all. My head is spinning a little, but I've got the gist of it. Kudos to a16z for the good writeup.

I do have one question: can someone clarify for me what "tracking stock" is? I see that it has no voting rights and pays no dividends, but I don't understand how the market sets a price in that case. What is stock if not voting rights and dividends?

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Essentially tracking stock is a claim on the results of the income statement (revenues & expenses) for VMWare, whereas normal common stock is a claim on the income statement as well as the balance sheet (assets & liabilities).

Another way to think about it is that ETFs are tracking stocks. You do not have claim on the underlying stocks that the EFT holds, you only have claim to the return that holding those stocks would produce.

Is that similar to the Google stocks with class A and C?

No, voting rights are the difference between the Google (now Alphabet) share classes.

This is similar in motivation to why Google separated out its shares - sometimes you want to let people invest without any associated political power of traditional stocks. While there's different types of stocks beyond even these like preferred, restricted, common, etc. it's nice to be able to separate those that have strictly economic concerns from those that have more business investment with shares.

A tracking stock might pay a dividend. It's not a whole lot different than normal stock, it is just linked to a segment of the company.

I think there is not much difference when it comes to the voting rights, a minority stake in a company that has some majority stake (or institutional investors that follow the board) doesn't have much in the way of meaningful voting rights anyway.

It's worth noting that the normal VMW stock doesn't pay a dividend, either.

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