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Investing in a company’s stock and betting on that company’s potential growth is a great way to grow your money. Take, for instance, Apple, a company that has garnered worldwide recognition for its groundbreaking innovations and loyal customers.
One of Warren Buffet’s most successful investments, in terms of nominal dollar returns, is Apple. By acquiring 907,559,761 shares of Apple, Buffet now enjoys this investment that’s earned him $127.5 billion in total profit.
However, as share prices rise, accessibility to such investments can become challenging, especially for new investors and traders looking to enter the game. Enter stock splits, a concept that makes desirable assets more accessible to investors.
In this article, we’ll dive into stock splits concerning Amazon, one of the Big Five companies in the United States. The other giants include Apple (AAPL), Google (Alphabet), Microsoft, and Meta (Facebook).
Amazon Stock Split: What You Need to Know
On March 9, 2022, the e-commerce giant Amazon announced a 20-for-1 stock split, the first since 1999. This decision also resulted in the news of a $10 billion stock buyback, making Amazon shares more accessible to potential investors.
On June 6, 2022, the split happened. With it, Amazon looked to make its high-priced stocks worth $2,785 each at the time of the announcement. This move made Amazon stocks more affordable for a broader range of people who want to trade and invest in the company’s growth and success.
Key Points: What Is a Stock Split?
Before we dive into Amazon’s stock split, let’s first understand what a stock split can mean for investors and traders like yourselves.
A stock split involves a company dividing its existing shares into multiple shares. In the case of Amazon’s 20-for-1 split, this means dividing each original share into 20 new shares.
A stock split’s primary goal is to remove investment barriers, such as high share prices, for retail investors. It doesn’t affect the company’s overall market cap but adjusts the share price and the number of shares.
Amazon Historical Stock Splits: A Timeline of Amazon’s Stock Split
Amazon.com Inc. (AMZN) has undertaken a few notable stock splits that have significantly shaped its shareholder base. We must look at historical data to understand Amazon’s recent stock split and what it can mean to you and your investment prospects.
Amazon performed its first stock splitting on June 2, 1998, barely a year after its initial public offering (IPO). Before the split, stock prices were at $85.68 a share, and by July 2, 1998, it was worth $124.02.
Amazon’s first split was a 2-for-1 stock split. In other words, you get an additional share for every share you hold. If you had invested 100 shares before the split, your $8,568 (100 x $85.68) investment would’ve been worth $24,804 (200 x $124.02) a month later.
The second stock split happened on January 5, 1999. This time, it was a 3-for-1 split. Unfortunately, the share price experienced a decline after the second stock split, with Amazon closing at $115.88 a month after, less than a third of its $354.96 price before the stock division.
On September 2, 1999, the third Amazon stock split occurred— another 2-for-1 split, similar to the first one. The pre-split share price was $119.06, worth $77.25 each the following month. That means a $3,544 ($15,540-$11,906) gain for 100 shares.
The Trend of Stock Splitting
Stock splitting isn’t limited to Amazon, nor is Amazon the only company that has ever split its stock. After Amazon’s 20-for-1 stock split announcement, several other companies followed suit, including Tesla, Alphabet Inc., Shopify Inc., and Nintendo.
A 20-for-1 Split
Amazon’s 20-for-1 split meant that if you bought one Amazon stock and held onto it after the split, you’ll receive 19 additional shares.
Amazon’s pre-split price is around $2,000. During Amazon’s announcement of the 20-for-1 split in March 2022, the Amazon stock price was down to $124. However, as of July 2023, the current price is $130.38.
Unfortunately, Amazon’s post-split performance contrasts with its board of directors and shareholders’ expectations, with shares of Amazon slipping about 20%. One of the reasons was the rising inflation rate, which forced many investors to remain cautious.
The Long-term Impact
If you need more funds or prefer not to invest in high-priced stocks, you can invest in fractional shares or portions of a whole stock. Unfortunately, not all brokerages offer this option, and many investors prefer to own complete shares rather than fractions of them.
The purpose of Amazon’s 20-for-1 split was to open the doors for more investors and traders to participate in Amazon’s growth. While the immediate effects of the recent split may have gone against expectations, there are reasons to be optimistic about its long-term prospects.
For one, Amazon can sustain revenue while effectively navigating volatile market conditions. Amazon web services, such as its cloud computing business, continue to show growth in sales. At the same time, Amazon expects its Prime membership program to drive further eCommerce expansion.
How the Split Could Have Sent the Stock Prices Higher
A stock split doesn’t inherently increase a company’s valuation. However, in the case of Amazon’s stock split, there were expectations that it would do just that and drive the company’s stock prices higher. These include:
- Increased affordability: Post-split, Amazon stocks were initially at $124.02, considerably lower than the $2,785 price tag it had before the split. Let’s assume investors find it more accessible to purchase whole shares. In that case, it can lead to higher demand and increased prices.
- Potential ETF-driven demand: Being included in the Dow Jones Industrial Average (DJIA) index was one of Amazon’s motivations for stock splitting. After all, it’s this index that tracks the performance of 30 large Nasdaq and New York Stock Exchange (NYSE) U.S. companies. If Amazon is successful, it could attract interest from exchange-traded funds (ETFs) that track the DJIA, boosting demand for Amazon shares.
- Share buyback program: A share buyback refers to a company repurchasing its shares from retail investors. This action lowers the number of outstanding shares while increasing the available shares’ value. Amazon’s $10 billion buyback was expected to generate positive investor sentiments.
When Did Amazon’s Stock Split and Why Did It Happen?
Amazon’s 2021 annual report reported a year-over-year (YOY) revenue growth of around 22%. However, the company’s stock price took a 25% plunge the year after. After all, a share price of $2,785 makes it hard for the broader market to invest in the stock.
To address this accessibility issue and offer more flexibility for investors, Amazon announced the split on March 9, 2022. Unlike previous Amazon stock splits, it was a 20-for-1 split this time.
How Often Has Amazon Stock Split?
While Amazon split its stock thrice within two years (1998-1999), the latest split was in June 2022. No discernible pattern can tell us how often Amazon splits its stock.
When Did Amazon Split Last?
Amazon’s last stock split occurred in June 2022. This latest one divided every Amazon stock into 20 shares. In other words, a 20-for-1 split.
Amazon’s Stock Split Could Help It Get Into the Dow
The DJIA, often called the “Dow,” represents the top U.S. companies and serves as a benchmark for the stock market. With the stock split, Amazon’s reduced share price allows more investors to meet the criteria necessary to join this exclusive club.
One of the major driving factors for Amazon to split its stock was getting into the Dow, as inclusion in the index could further elevate its standing and attract institutional investors seeking exposure to top-performing companies.
What Was Amazon’s Stock Price Before the Split?
Before the split, Amazon’s stock price was $2,785 per share, deterring many investors from participating. The decision to do a 20-for-1 split and its implementation significantly increased the number of outstanding Amazon shares, making them more budget-friendly for individual investors.
After the Split
In the aftermath of the share split, a pattern emerged: the reverse of the pre-split trend. Initially, Amazon shares lagged behind the broader market. However, the stock eventually rebounded and performed in line with the benchmark.
Upcoming Stock Splits
While we’ve focused on Amazon’s recent 20-for-1 split, stock splits aren’t exclusive to a single company. GameStop, for instance, announced a 4-for-1 stock split on July 6, 2022, a month after Amazon’s stock split.
Other companies, such as Tesla and Alphabet, also undertook stock splits of their own, shaping the stock market landscape. Keeping an eye on upcoming stock splits can give you an insider look into market trends and potential investment opportunities.
Will Amazon’s Stock Split Boost Its Shares?
The idea behind Amazon’s stock split was to attract more retail investors. If successful, it can increase the demand for Amazon shares. Unfortunately, this wasn’t the case, at least not initially.
With rising inflation and the Federal Reserve (FED) raising interest rates, investor and market sentiment turned pessimistic. As an investor, your job is to conduct research and focus on the company’s fundamentals and past performance rather than buy into speculation.
Amazon Stock Split May Draw Retail Traders in Tough Market
In a volatile market environment, Amazon’s or any company’s stock split may capture the attention of many retail traders. When this happens, your shareholdings and profits may balloon if the stock price increases.
Should You Buy Into a Stock Split?
To answer this question, let’s assume you bought 100 Amazon shares for $16 each at its IPO on May 15, 1997, and have held onto them to today. By now, your initial 100 Amazon shares have been split four times and would look like this:
- 200 shares (100 x 2) on June 2, 1998.
- 600 shares (200 x 3) on January 5, 1999.
- 1,200 shares (600 x 2) on September 2, 1999.
- 24,000 shares (1,200 x 20) on June 6, 2022.
With today’s valuation of Amazon’s stock at $130.45, your initial $1,600 investment would be worth $3,130,800 (24,000 x $130.45). Amazon shareholders would’ve earned huge profits if they had bought into past stock splits.
However, stock splits aren’t definitive indicators of a company’s future performance. They can incite increased interest and participation and raise the stock price. Still, you should make investment decisions using thorough research on the company and the broader market.
How Much Does It Cost to Buy Amazon Stocks?
As of July 6, 2023, buying Amazon stock will cost you $130.45 a share. For 100 shares, you need $13,045 (100 x $130.45). Unfortunately, purchasing stock may come with fees, which can be 1% to 2% of your total purchase with most full-service brokers.
Is Amazon Stock Splitting Soon?
Since its IPO back in 1997, Amazon has split its stock four times. Amazon’s intention for the most recent one was to combat the stock’s inaccessibility to investors. No information suggests that Amazon will stock split any time soon.
Stop Fretting About Stock Splits
While stock splits can generate excitement and media buzz, keeping their significance in perspective is crucial. A company’s underlying fundamentals and performance remain the key drivers you should base your investment decisions on.
Frequently Asked Questions (FAQs)
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Did Boris give Amazon stocks a £50million+ boost?
Unfortunately, there’s no evidence that the former Prime Minister of the United Kingdom (U.K.) Boris Johnson gave Amazon or any stock a £50 million+ boost. However, Johnson did announce his intentions to pledge this amount to Scottish farmers to promote fair funding in the U.K.
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What date is the Amazon stock split in 2022?
Amazon’s most recent stock split announcement was on March 9, 2022. The board of directors authorised the split later that month, while the Amazon shareholders did so in May 2022. The implementation of the split occurred on June 6, 2022.
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Should you buy Amazon before or after the split?
Whether to buy Amazon stocks before or after a split depends on your preferences and investment strategy. If you expect the stock price to skyrocket leading up to the split and after, buying before can be a good option.
On the other hand, buying Amazon shares after a split may allow you to take advantage of more affordable prices. Buying after a split may be better for a newbie investor who couldn’t invest in Amazon pre-split to try to participate in Amazon’s potential growth.
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How do you invest in Amazon?
Amazon stocks are available on the American stock exchange Nasdaq, but you’ll need a brokerage account to make stock investments.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial advice. It is not intended to be a recommendation to buy or sell any financial instrument or engage in any investment activity.
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The information provided here does not necessarily reflect the products or services offered by our company. Any mention of financial products or services is for informational purposes only and should not be considered an endorsement.
All investments involve risk, including the potential for loss of principal.
This information should not be considered as financial advice. You should always seek professional financial advice from a qualified advisor before making any investment decisions.
