Analytics, 11 March 2022
What Investor should know about Amazon Stock Split
Tech giant Amazon unveiled plans to split its stock on Wednesday, only a month after Google parent Alphabet said it would do its own 20-for-1 split. The announcement sent Amazon shares up more than 6% in intraday trading Thursday, to more than $2,900 each
Amazon is the latest tech giant to announce it will split its shares, following Apple, Tesla, and Google.
Stock splits usually happen when the price of a company’s shares has gotten very high. In a stock split, a company divides up its shares to lower their price and increase the overall number of shares available. Even though stock splits are mostly superficial and don’t change anything about the company, they can make shares more appealing to investors.
What to know about Amazon’s Stock Split
- What’s a stock split? A stock split is when a company has decided to make more shares available in order to reduce the cost of a single share. They achieve this by chopping existing shares up. In a 5-to-1 stock split, for example, a company that originally had 50 million shares would now have 250 million. Each previous single share now becomes five shares.
- How much is Amazon splitting its stock by? Amazon has announced that it will split shares by a factor of 20-to-1. This means that after the stock split, there will be twenty times the number of Amazon shares in existence than there are today.
- Will owners of Amazon stock before the 20-to-1 split have 20 times the number of shares once the stock splits? Yes. Say you own 1,000 shares of AMZN today. After the stock split, you’ll now own 20,000 shares.
- Does the 20-to-1 stock split mean the total value of my AMZN shares will increase 20 times? No. The total value of your Amazon shares will be worth the same as they were the moment before the split. Though you’ll now have 20 times the AMZN shares, they’ll all be worth 20 times less because there are 20 times the number of shares in existence.
- Does the stock split make Amazon a more valuable company? No. The stock split itself will not make Amazon a more valuable company. A company’s market cap is determined by multiplying the share price by its total number of shares. Amazon will have 20 times the number of shares, but they’ll all be worth 20 times less, meaning its market cap will remain unchanged from the moment before the split.
- Why bother splitting the stock then? Stock splits serve to make a company with a high share price–like Amazon–cheaper for retail investors. In a statement, Amazon said that the split would make the stock more affordable and “give our employees more flexibility in how they manage their equity.” If Amazon’s stock split took place at the stock’s Wednesday closing price of $2,785.58, the new price of the stock would be $139.28 per share.
- When do Amazon shares split? In an SEC filing, Amazon says the split will take place “on or about June 3, 2022” for shareholders of record by May 27, 2022. (That means if you owned shares on the last Friday in May, they’ll split on the first Friday in June.) AMZN will begin trading at its new split-adjusted price on Monday, June 6, 2022. Owners of Amazon stock will receive their additional shares on Friday, June 3. Amazon will begin trading under its new price when markets reopen on June 6.
- Amazon’s Stock Split Could Help It Get into the Dow: There’s another reason Amazon may be choosing to split its stock right now: The possibility of being included as one of the 30 stocks that make up the Dow Jones Industrial Average (DJIA). Unlike other leading stock market indexes, the DJIA is a price-weighted index. That means the 30 component companies in the Dow are weighted in the index according to their stock price—rather than their market cap, as is the case with S&P 500 component companies. The DJIA includes some of the biggest companies by market cap in the U.S. stock market, but they also prefer to maintain a relatively even balance when it comes to share price. They don’t want high-priced stocks to have an outsized impact on the performance of the index. Amazon’s stock split makes it more attractive as a component in the price-weighted Dow. It’s already among the largest companies on earth by market capitalization. At a split-adjusted price of $124 a share, Amazon would be right in the middle of the pack of share prices of current DJIA components.