In March, Amazon.com, Inc. (AMZN) declared its first stock split since 1999. Today, June 6, the 20-for-1 stock split went effective. At the time of the announcement, each share was valued at $2,785, a nearly 4,500% gain over the last partition.
Investors like an Amazon Stock Split because they seem to provide a benefit at no additional cost. Remember that slicing a pizza into 20 pieces does not create 20 other pizzas.
The 20-to-1 stock split of Amazon has made the news.
On March 9, Amazon shareholders approved a 20-for-1 stock split and a $10 billion repurchase. The board deemed the separation necessary to “give our workers more choice in how they handle their Amazon shares and make the share price more reasonable for anybody seeking to join.”
Each existing share will be divided into new shares if a corporation decides to split its stock. In a 20-1 stock split, each current share of the company’s stock would be divided into twenty new shares with a value equal to one-twentieth of the original share price.
An Amazon stock split has no impact on a company’s market capitalization (the total value of all its shares) or the value of an individual shareholder’s holdings. It simply raises the number of shares outstanding while lowering the price per share.
Amazon is dividing its stock for what reason?
There’s little doubt that Amazon’s success can be seen in the company’s recent stock split. Sales for the year 2021 at Amazon were $470 billion, up roughly 22% from the previous year. Profit rose to $33.4 billion, almost 56% from a year earlier.
The stock price of Amazon has dropped by almost 25% since 2022, despite the company’s apparent success. AMZN’s stock price has taken a hit since the beginning of the year due to the general decline in the stock market.
The RIVN share price is down 65% this year since the firm recorded one of the first quarterly losses in seven years in the first quarter of 2022, owing to an ongoing supply chain issue, increasing inflation, and a disastrous investment in electric cars startup Rivian.
Investors in AMZN paid $2,785 for a single share before the stock split announcement. Investors that are just starting will have a hard time becoming involved. The hefty share price may discourage some investors, even if certain brokerages sell fractional Amazon shares.
They are potentially joining the Dow Jones Industrial Average after the stock split is Amazon.
Another reason Amazon could decide to split its stock is so it can join the other 30 companies that make up the Dow Jones Industrial Average (DJIA).
The Dow Jones Industrial Average is a price-weighted index, which differs from most major stock market averages. In other words, unlike the S&P 500, the 30 companies that make up the Dow are given equal weight in the index based on their stock price rather than their market capitalization.
The Dow Jones Industrial Average is a shareholder market index that tracks the performance of 30 of the most prominent companies/firm in the United States of America in market capitalization to preserve price stability.
They would prefer that pricey stocks not have a disproportionately large negative effect on the index as a whole.
According to the most current methodology statement for the DJIA, the index’s manager, S&P Dow Jones Indices, analyzes to determine whether the highest-priced firm in the index has a price that is more than nine to ten times that of the lowest-priced company in the index.
After its Amazon Stock Split, Amazon is now a more attractive candidate for inclusion in the price-weighted Dow. As measured by market valuation, it is already one of the biggest companies in the world. Amazon’s split-adjusted share price of $124 would place it in the center of the current DJIA components.
Stock Splits: A Quick Overview
With a stock split, the firm issues its stockholders a more significant percentage of its total shares. Demand rises when a stock split reduces the price per share of a company’s stock.
Before June 6, those who spent USD 2,785.50 on 100 Amazon shares would have received 2000 shares trading at USD 139.28 each. The total value of the shares will stay at USD 278,550. The split will not affect the aggregate value of the investors’ assets.
Four stock splits have been since the company’s inception on July 5, 1994. While the company has historically split its shares 2:1 as well as 3:1, the current 20:1 split is a significant shift.
A rising pattern of stock splits
Several other firms have announced Amazon Stock Split after Amazon announced a 20-to-1 stock split. The goal of Tesla’s proposed three-for-one stock split is to make the electric car maker’s shares more affordable to investors. Tesla has placed the proposal on a list of conditions it intends to bring up at its shareholder meeting on August 4, 2022.
Based on the business’s most recent closing price of USD 2,288 on May 17, the board of directors of Alphabet, Inc., the parent company of Google and YouTube, has authorized a twenty-for-one stock split, which is set to take place on July 15, 2022. Alphabet has gone without a stock split since 2014.
Shopify In. is a Canadian multinational e-commerce firm, and on June 22, 2022, its shareholders authorized a stock split that would go into effect on July 22, 2022. The choice was taken after Shopify’s stock dropped by half this year.
The Japanese video game developer, Nintendo, has lately suggested a stock split to lure ordinary investors. The very new regulations will go into effect on October 1, 2022.
Formerly, the price of a single Amazon share was $2,785, making the company unattractive to first-time investors. Although some brokers may provide the purchase of fractional shares of Amazon, the company’s sky-high share price still deters many investors. An amazon stock split will make the company’s shares available to a broader audience to address this problem. We hope that these pieces of information have helped you.