E-commerce giant Amazon (NASDAQ:AMZN) underwent a 20-for-1 stock split after markets closed last Friday, bringing its share price down to $122.35, the lowest level it has been at in 12 years.
While splits don’t change the financial performance or underlying fundamentals of a publicly traded company, they do make the shares more affordable to a broader range of investors, notably individual retail investors, and that can lead to increased buying and a rally in the stock. Last Friday, AMZN stock was trading at more than $2,000 per share. It had been as high as $3,773.08 per share a year ago, putting them out of reach for many smaller investors. But following last Friday’s split, people can now buy the stock for less than $125. The last time Amazon’s share price was this low was in 2010 coming out of the 2008-09 financial crisis.
What Happened
Amazon announced on March 9 that its board of directors had approved a 20-for-1 stock split and that the shares would begin trading on a split adjusted basis today (June 6). News of the split was greeted enthusiastically by investors and analysts, many of whom had been lobbying for years for the Seattle-based online retailer to lower its share price through a stock split. However, the rally in AMZN stock that followed news of the split was short-lived. Prior to today, the company’s stock had fallen more than 30% this year, dragged lower by disappointing earnings reports and the broader market selloff in technology securities.
This is the fourth time in Amazon’s history that the company has split its stock. The last time Amazon’s stock split was in September 1999, when it split on a 2-for-1 basis. AMZN stock also split on a 2-for-1 basis in June 1998, and on a 3-for-1 basis in January 1999. Amazon’s share price had risen more than 4,000% since its last stock split more than 20 years ago just before the dot.com bubble burst. The company held its initial public offering (IPO) back in 1997 when Amazon’s stock began trading at $1.73 per share.
Why It Matters
As mentioned, the stock split does not change anything about Amazon’s operations or its finances. However, the lower share price does make the stock more affordable to a wider number of investors and that could lead to increased buying. Many companies see stock splits as a way to attract investor interest and give their share price a boost, at least temporarily. And Amazon is not the only mega-cap technology company to announce a stock split this year.
In February, Google parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) also announced a 20-for-1 stock split effective on July 15 this year. It’s the first time Alphabet has split its stock since 2014 when it split on a 2-for-1 basis. There are reports that electric vehicle maker Tesla (NASDAQ:TSLA) is also planning to split its stock this year, even though it executed a 5-for-1 stock split in August 2020. Also in August 2020, consumer electronic giant Apple (NASDAQ:AAPL) split its stock on a 4-for-1 basis. Stock splits are quite common among U.S. publicly traded companies and usually cheered by investors.
However, at least one corporate leader has famously refused to ever split his company’s stock. The Class A shares of Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A) have never split, and, as a result, they currently trade at $472,426.11 for a single share, putting them out of reach for the vast majority of retail investors. Buffett has said he’ll never split the stock as the high price attracts only serious investors and helps ensure that people hold the stock for a longtime rather than actively trade the shares.
What’s Next for AMZN Stock
We’ll see if the stock split prompts a rally in AMZN stock today. However, investors who have long wanted to hold shares of the e-commerce giant in their portfolio can now do so at a much more affordable price. Last week, an individual investors who had $2,000 to spend couldn’t buy a single share of Amazon stock. Today, that investor can buy 16 shares of the company.
On the date of publication, Joel Baglole held long positions in AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
