Last month, Alphabet surprised one and all with the announcement of a historic 20-1 stock split. While there is still a buzz around the Alphabet stock split, Amazon’s board has also announced a 20-for-1 stock split and $10 billion share buyback. This is the tech giant’s first stock split since 1999 and has resulted in a 6% increase in its share value, which ended at over $2900 on Thursday. According to the board, the Amazon stock split would “give its employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest.”
Before diving further into the Amazon stock split, let us first see what exactly is a stock split?
The Stock split is a process where a company’s existing shares are split into multiple shares. For instance, in a 20-1 stock split, the existing shares will be divided into 20 new shares. The cost of the new shares will be reduced—as each of them would be worth 1/20 of the original share value. A stock split does not affect a company’s market capitalization as well as the investors’ stake in the company. It only increases the number of shares and decreases the cost of each share.
This leads us to the next question, why is Amazon splitting its stocks?
Well, there are several speculations behind the Amazon stock split. Currently, Amazon is not included in the 30 stocks that comprise the Dow Jones Industrial Average (DJIA). Some reports believe that this move might help get Amazon’s stock in the DJIA. There is another possibility that Amazon might be looking for mergers and acquisitions, given the rising popularity of stock-for-stock acquisitions and the advantages associated with it.
Impact on Investors
The decision from Amazon to split the stocks will give every investor additional 19 shares for every share they hold, ultimately decreasing the share price in the same proportion. Many investors today cannot afford to buy Amazon’s shares—which often cost around $3000 per share. The decreased share price is enticing, particularly, for new investors. Moreover, as the stock split has no effect on the fundamental value of the stakes, the existing shareholders would not face any significant impacts.
Many people around the world shared their views on the impact of the Amazon Stock Split on investors. Perri Dong, Portfolio Manager at RedWood Winslow Agency and an Amazon shareholder said, “The Amazon stock split just makes inexperienced investors and traders feel better.” Xavier Miller, an American Social media influencer and podcast host tweeted, “Amazon doing a 20 for 1 stock split is probably the best news I have heard all year.”
Is this a good time to invest in Amazon?
Although the stock split would not have a very significant impact on the overall share value of Amazon, it would certainly impact the share price in a positive way in the long run. In our opinion, if you are a retail investor or a new investor with a slightly low budget, you can consider buying the Amazon stock as it may well be advantageous in the long run.
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