Tracking Stock

What is a tracking stock?

A tracking stock is a special class of equity issued by a parent company that is tied to the financial performance of a specific business segment or division. Tracking shares trade separately from the parent company’s common stock, allowing investors to gain exposure to one part of a larger business while the parent retains operational control.

How tracking stocks work

The parent company separates the revenue and expenses of the tracked division in its financial reporting, creating a distinct set of financials for that segment.
Tracking shares are registered and reported similarly to common stock under U.S. securities regulations.
Market performance of the tracking stock is driven largely by the results of the tracked division rather than the parent company’s overall performance.
Despite the separate trading and reporting, the tracked division typically remains under the parent company’s management and legal umbrella.

Benefits for investors

Targeted exposure: Investors can buy into the most attractive or high-growth part of a diversified company without purchasing the entire conglomerate.
Potential for higher returns: If the tracked segment outperforms the rest of the company, the tracking stock can appreciate independently.
Choice by risk profile: Investors can select segments that better match their risk tolerance or investment thesis.

Risks for investors

Limited governance rights: Tracking shares often carry limited or no voting rights, so shareholders have little direct influence on the tracked division’s management.
Bankruptcy and creditor risk: If the parent company faces bankruptcy, creditors may have claims on the tracked division’s assets because the segment typically remains part of the parent’s legal entity.
Performance dependence: A tracking stock can decline if its segment underperforms, even if other parts of the parent company are doing well.
Parent-company exposure: Because the parent retains control, decisions by corporate management may not align with tracking shareholders’ interests.

Benefits for companies

Capital raising: Issuing tracking stock can raise funds for the parent company without creating a separate legal entity. Proceeds can pay down debt or support growth.
Market feedback: Separate trading provides a market signal of investor interest in a particular business line, which can inform strategic decisions.
Simpler than a spinoff: Tracking stocks avoid the need to set up an independent board and separate corporate structure.

Risks and drawbacks for companies

Perception of divestiture: Issuing tracking shares may be viewed as carving off the best assets, potentially hurting the parent’s valuation.
Complexity in reporting and investor relations: Maintaining separate financials and communicating two market valuations can increase administrative and disclosure burdens.
Limited insulation: Because the tracked segment usually remains legally part of the parent, it may not be protected from parent-level liabilities.

Example: Disney’s Go.com

In 1999, The Walt Disney Company issued a tracking stock for its internet unit, Go.com, which included sites such as ESPN.com and ABCNews.com. The tracking stock traded under the ticker GO. After the dot-com bust, Disney closed Go.com in 2001, laid off staff, and retired the tracking stock.

Key takeaways

Tracking stocks let investors target a specific division within a larger company while the parent keeps operational control.
They offer focused exposure and capital-raising benefits but commonly come with limited voting rights and legal exposure to parent-company creditors.
Tracking stocks gained prominence in the late 1990s and remain a less common, specialized tool for corporate finance and investor allocation.