Amazon’s 2022 has been historically bad for the company, but there have been some other elements of note. Companies occasionally decide to split their stock, and for Amazon, that bell started ringing this year.
Amazon’s stock split is important to know about for existing and potential investors alike, so it’s important to know the “why” behind the “what.”
Today, let’s take a look at Amazon’s stock split and learn what it may mean for you. Jump in with us!
What’s a Stock Split?
Before we discuss Amazon’s stock split, it’s important to understand what a stock split means. A stock split is when a company increases the amount of its outstanding shares by issuing more shares to its existing shareholders. This results in every individual share being worth less, but the overall value of the shareholder’s holdings stays the exact same.
For instance, let’s say a company implements a 3-for-1 stock split. This means that for every share owned by an individual shareholder, they will receive an additional two shares, making for a total of 3 shares. If a shareholder owns 75 shares worth $60 each, the total value they own would be $4,500. After the stock split, the shareholder would now own 225 shares total, however, each individual share would be worth $20. The overall value of the shareholder’s holdings would remain at $4,500, but the value of every individual share would be reduced to one-third of its original value.
Thinking of it like a pie or pizza is helpful; the pizza is still the same size, there are just more slices!
Amazon’s Stock Split
Amazon is a large company and its stock price was getting pretty high last year. In many cases, this is a signal for a company to initiate a stock split.
The most recent stock split with Amazon occurred on June 6th, 2022. Amazon has had previous splits in the past, but nothing quite to the scale of this one. This stock split was 20-for-1, meaning that each shareholder received 20 shares for every share they held. For someone holding 20 shares pre-split, they would own 400 post-split.
This year has been a big one for splits, but Amazon’s is, without a doubt, one of the largest. Big names like Google and Tesla have initiated splits this year as well, hoping to attract more investors. In Google’s case, the stock split impacted three different “classes” of stock, but most other companies don’t have a divided system as Google does. In Amazon’s case, the split impacted all of their shares (they only have one type).
Before the split, Amazon was trading at around $2,785.58. After the split, the share price opened on June 6th at $125.25, over a 20x reduction in share price. Generally, stock splits cause a slight increase in value at their announcement, which is likely what caused the stock to open a little higher than it closed the previous market day.
Why Did Amazon Split Its Stock?
Stock splits are often done to benefit investors. For many individuals, purchasing just one share of Amazon at a high price may not be a feasible option. Therefore, corporations may instate a stock split so their stock becomes more affordable and accessible to more investors, particularly those who couldn’t afford to buy in before. With a lower “buy-in” price, shares of Amazon are more likely to be purchased by “regular people” who have an interest in investing. These changes primarily impact retail investors rather than institutional investors.
Retail investors are individuals who invest on behalf of their own personal accounts and typically not as their primary income source. Institutional investors, on the other hand, are large financial organizations that invest on behalf of their clients. This can include mutual funds, hedge funds, insurance companies, and pension funds, with examples of investment institutions including Merryl Lynch, Blackrock, and Charles Schwab. These large institutions tend to have larger amounts of capital to invest and often make investments at a scale that isn’t possible for individual people.
While retail investors may not have as much capital, they are more numerous and can provide extra cash for a company after a stock split. Additionally, the news will generally draw attention to the company and often provides a slight boost to stock prices.
What the Amazon Stock Split Means for You
Since the shares are being automatically divided and price adjusted, the only real benefit that existing shareholders get is the slight bump that often occurs right after the announcement. In the long term, the stock split doesn’t do much for existing holders unless the price surges quite high again.
For individuals interested in investing in Amazon, the stock split means that it is now much easier to acquire a position in the company. Before the split, a single share was well over $2,000, making it a bit silly to purchase only a single share in the company. For smaller-scale investors, the split means that larger volumes of shares can be traded without needing access to millions of dollars in capital.
Still, overall, the split only makes things more affordable in the short term but doesn’t impact things too much in the long run, at least not more than most other metrics like financial performance and governance.
Amazon’s History with Stock Splits
In total, Amazon has undergone four splits in its history:
- The first one took place on June 2, 1998. This was a 2-for-1 split, meaning that for every share of Amazon owned prior to the split, the shareholder now owns two shares total.
- Amazon’s second split occurred on January 5, 1999, and it was a 3-for-1 split. This means that for every share of Amazon owned prior to the split, the shareholder now owns three shares total.
- The third split took place on September 2, 1999, and it was also a 2-for-1 split. This means that for every share of Amazon owned prior to the split, the shareholder now owns two shares total.
- The fourth split is the most recent and happened on June 6th, 2022. This split was a 20-for-1 split, meaning that for every single share of Amazon prior to the split, the holder now has 20 total instead.
The fourth and most recent split is, by far, the company’s largest. Looking at the cumulative effect of all of Amazon’s stock splits, a single share when the company first went public (IPO) would be worth 240 shares today.
Review of the Essentials
Here are the essential things to remember when looking at the Amazon stock split.
- The most recent stock split for Amazon happened on June 6th, 2022. This split was a 20-for-1 split, meaning that for every single share of Amazon prior to the split, the holder now has 20 total.
- There have been a total of four stock splits in Amazon’s history, with the second most recent occurring in 1999.
- Stock splits are often a company’s way to lower its share price and encourage smaller investors to take up positions in the company. This most recent stock split from Amazon seems to be doing exactly that.
- For most people, the Amazon stock split doesn’t mean much and won’t have any long-term effects on the company or its value. Still, smaller investors may see it as an opportunity to buy in with cheaper shares.
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