Amazon stock splitted to $122 yesterday. What to expect and who's next?

Moo Options Explorer joined discussion · Jun 7, 2022 06:10

Back in March, 2022, Amazon $Amazon(AMZN.US)$ announced a 20-for-1 stock split, which will be implemented Monday, June 6. Shares of the e-commerce giant climbed 5.4% the next day after the announcement. The shares were down about 12% till last Friday.

Each Amazon share will be splitted into 20 shares on Monday. Price of Amazon stocks dropped 2.5% and closed at $2,447 last Friday. Shares of Amazon opened at about $125. Meanwhile, the outstanding shares will jump from 508.72 million to 10.17 billion.

This is the 4th time Amazon has declared a stock split since it went public. The last three times happened more than 20 years ago: 2-for-1 in June 1998, 3-for-1 in January 1999, and 2-for-1 in September 1999. All of the three split were happened during the tech bubble period.

What is a stock split?

A stock split happens when a company increases its outstanding shares to boost liquidity. Even though the number of shares will increase by a specific multiple, the total dollar value of the shares (market cap) will remain the same as the company's fundamental values have no change.

The most common share split ratios are 2-for-1 or 3-for-1, where investors who own the stocks before the split will multiple their numbers of holdings on the stock split date based on the ratio.

What does that mean for investors?

First, a share split generally attracts more individual investors as the price of stocks becomes more affordable. Since more investors will have access to the stock, it will provide more liquidity for the company.

Also, the stock splits underlying the financial success as the share price went up too high for the individual investors to buy.

Second, investors who already own the stock will have the illusion of gaining something. Although the total value of shares has not changed, investors have more flexibility with their position as the price per share goes down.

Lastly, Barron's noted the potential advantage for Amazon to join $Dow Jones Industrial Average(.DJI.US)$ after the split.

The split opens the door to the potential inclusion of Amazon shares in the Dow Jones Industrial Average. Adding high-price shares to the Dow is problematic because the index is weighted according to price, so the same percentage change in a high-price stock moves the index more than for a low-price one.

--- written by Eric J. Savitz, authors of Barron's.

Who will be the next?

Google's parent company $Alphabet-A(GOOGL.US)$ $Alphabet-C(GOOG.US)$ announced a 20-for-1 stock split in February that will take effect on July 15. $Tesla(TSLA.US)$ also released news that it has the intention to split stocks but has not disclosed details yet.

According to Barron's, $Booking Holdings(BKNG.US)$ maybe a candidate for stock splits as the price of stocks is trading above $2300. Other tech stocks such as $Equinix Inc(EQIX.US)$ , $ASML Holding(ASML.US)$ , $Broadcom(AVGO.US)$ , $Lam Research(LRCX.US)$ , $ServiceNow(NOW.US)$ , $Adobe(ADBE.US)$ , and $Intuit(INTU.US)$ are trading at above-average prices level, may split stocks in the future.

Source: Barron's

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