Amazon (AMZN -0.83%) recently completed a much-talked-about stock split. Why was it such a big deal? Because Amazon's last such split was more than 20 years ago. As Amazon shares soared -- eventually reaching more than $3,000 in recent times -- investors speculated about a potential split. So when the company finally announced the move, it grabbed everyone's attention.
A stock split doesn't change anything fundamental. The company issues new shares to current holders, bringing down the price of each share accordingly -- and the market value of the company remains the same. Does that mean we can call the recent stock split a "nonevent" for Amazon? Not necessarily. Let's take a look at why Amazon's stock split really does matter.
A 20-for-1 split
Amazon announced a 20-for-1 split in mid-March. That means investors holding one Amazon share received 19 additional shares. At a pre-split price of about $2,000, the operation brought Amazon stock down to about $124.
Hopes were high that this move would spur investors to flock to the shares at a lower price point in the days following the split. But Amazon's post-split performance hasn't been too bright. The stock has slipped about about 20%.
It's not surprising that Amazon's stock hasn't taken off. Higher inflation weighed on the e-commerce giant's earnings in the first quarter. And management said that challenge may last longer than the company expected earlier in the year.
At the same time, higher inflation has plagued companies and consumers worldwide -- and interest rates are on the rise to tame it. Rising inflation results in rising costs for Amazon. And it hurts the wallets of consumers -- meaning they may buy fewer nonessential items on Amazon. As for interest rates, they weigh on consumers' wallets too. All this means that today's environment isn't the best for retailers.
Knowing that, some investors aren't rushing out to buy Amazon shares. They may want to wait and see how Amazon handles its costs in the next earnings period. Amazon said during its last report that it's focusing on costs that it can control, such as those linked to productivity and its fulfillment network.
The long-term impact
So that's Amazon's current situation. And as such, the stock split may not matter much. But over the long term, the stock split does matter. As mentioned, thanks to the split, Amazon shares now are trading at a lower price. That helps opens the door up potentially to a broader range of investors.
Prior to the split, investors who didn't have thousands of dollars to invest in just one stock -- or didn't want to invest that much -- could rely on fractional shares. But some brokerages don't offer that opportunity. And some investors prefer buying at least one full share or more. For all of these investors, it's a lot easier to buy shares of Amazon post-split. And this one element could help Amazon's shares eventually pick up speed.
It's also important to remember that Amazon's revenue and profit growth and its ability to manage today's tough times matter even more than the split. If a company splits the stock but keeps reporting terrible earnings quarter after quarter, the stock split won't offer a lift -- in the near term or the long term.
But when it comes to Amazon, I'm confident about long-term growth. The company's cloud computing business continues to increase sales and operating income in the double digits. And Amazon's Prime membership program should drive e-commerce growth once inflationary pressures ease. All of this means another wave of gains may be in Amazon's future.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
FAQs
In a statement, the company said, "This split would give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company."
Which stocks are expected to split in 2024? ›
Investors looking for potential stock splits before they hit the news may want to consider these assets.
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Its Street-high target price of $230 implies an upside of 27.2% over the next 12 months. Analysts are overwhelmingly bullish on Amazon, and multiple brokerages listed it as a top pick for 2024. It has a consensus rating of “Strong Buy,” and is the highest-rated stock among the Magnificent 7.
Will Amazon stock split increase value? ›
A stock split does not change the value of the company, rather it spreads that value across more shares. But splits have a downside. While the total market capitalization remains unchanged, stock splits result in a lower price point for each share.
Should I buy before or after a stock split? ›
Does it matter to buy before or after a stock split? If you buy a stock before it splits, you'll pay more per share than what it'll cost after it splits. If you're looking to buy into a stock at a cheaper price, you may want to wait until after the stock split.
Was Amazon stock ever $3000 a share? ›
Amazon stock hits $3,000 for the first time as investors continue betting on Seattle tech giant. Amazon stock just keeps on climbing. The Seattle company saw shares rise above $3,000 for the first time ever Monday morning.
Do stocks grow after split? ›
From time to time, stock splits are followed by a bump in stock performance—but not always. Is the split worth it? – Stock splits have no tangible impact on a company's total value—they simply create more shares at more affordable prices.
How often do stocks go up after a split? ›
A stock split does not change the value of a stock because it does not change the fundamentals or growth prospects of the underlying company.
Is it good when a stock splits? ›
It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.
Should I hold Amazon stock forever? ›
Amazon and Apple have the cash and customer appeal to stick around forever. One of the best investments you can make is to buy shares of a financially strong company that makes products millions of people use every day. Amazon (AMZN 1.49%) and Apple (AAPL 0.51%) are two such companies that come first to mind.
Its five-year Amazon share price forecast expects the stock to decline to $153.56 by April 2029. Meanwhile, another algorithm-based prediction platform, GovCapital, expressed the most bullish 1-year Amazon stock forecast, setting the AMZN target price at $303.76 for April 19, 2025.
What will 1 share of Amazon stock be worth in 10 years? ›
Analysts at Coin Price Forecast do offer a 2034 projection for Amazon stock, estimating a 10-year price increase of 276%, to $672 per share.
Should I buy Amazon now or after the split? ›
The clock is certainly ticking before Amazon conducts its stock split. The good news is that Amazon is a smart pick to buy whether you do it now or wait until after the share price is much more affordable next week.
What will be the price after Amazon stock split? ›
Prior to its most recent split, a share of Amazon stock was worth $2,785.58, which converted to $139.28 after the 20-to-1 split. It closed last week at $113.55.
Why is a stock split good news? ›
Are Stock Splits Good or Bad? Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and it's a positive signal.
Is it good or bad to split stocks? ›
It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.
What was Amazon stock price when it split? ›
That means investors holding one Amazon share received 19 additional shares. At a pre-split price of about $2,000, the operation brought Amazon stock down to about $124. Hopes were high that this move would spur investors to flock to the shares at a lower price point in the days following the split.
What was Amazon stock price after stock split? ›
This year's was the first stock split Amazon had undertaken since 1999, when it executed a 2-to-1 split that brought each share price to $57.50. Prior to its most recent split, a share of Amazon stock was worth $2,785.58, which converted to $139.28 after the 20-to-1 split. It closed last week at $113.55.
What does a 20 1 stock split mean? ›
A 20-1 stock split means that each share of Amazon today will turn into 20 shares, 1 existing one and 19 additional ones, following the stock split.
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