Amazon’s 20-1 Stock Split Is Absolutely Bullish For Long-Term Investors

Amazon's 20-1 Stock Split Is Absolutely Bullish For Long-Term Investors

Daria Nipot/iStock Editorial via Getty Images It feels like decades since Amazon’s ( AMZN ) stock split, and that’s because it has. From 6/1/98 to 9/1/99, AMZN’s shares split three times, with a 2-1 split on 9/1/99 being the last time AMZN’s stock split. AMZN just announced very bullish news, in my opinion, that current and future shareholders should be excited about. AMZN has announced a 20-1 stock split subject to shareholder approval on May 25 th and replacing a previous share buyback program with a $10 billion buyback authorization. Many thought AMZN would have announced a split during the 2021 Q4 earnings call, especially since Alphabet (NASDAQ: GOOG ) ( GOOGL ) announced that they would be splitting their stock. It’s never too late, and shareholders just received a double dose of bullish news. A stock split doesn’t make the company more valuable but it is bullish

AMZN has 508.8 million shares outstanding as of their last filing date. AMZN doesn’t increase the value of its company by splitting their stock. Today shares closed at $2,785.58, placing their market cap at $1.42 trillion. If AMZN’s 20-1 split was to occur tonight, there would be 10.18 billion shares outstanding trading for $139.8 per share, representing a $1.42 trillion market cap. This also isn’t dilution as your shares would still represent the same percentage of equity in AMZN after the 20-1 split as they did prior to the split.

AMZN just announced the 20-1 split. AMZN’s annual meeting will be held on May 25 th , 2021, where the 20-1 split will be voted on. If the shareholder base votes yes and this motion passes, then shareholders of record at the close on May 27 th will be provided with 19 additional shares. If you own 1 share of AMZN, you will now have 20 shares, and if you own 10 shares, you will now have 200 shares. This will occur on or around June 3 rd, and split-adjusted trading is expected to occur on June 6 th .

There are different viewpoints on stock splits. Some people refer to Berkshire Hathaway ( BRK.A ) (NYSE: BRK.B ) as an example of a stock that has never split and is now trading at $488,245 per share. The argument is that the market cap doesn’t change during a stock split, and if a company is going to increase in price, it will just continue to increase. I can’t argue this point because it’s correct. If I have a large pizza with 8 slices and cut them into halves, I now have 16 slices, but it’s the amount of pizza doesn’t change. I love stock splits and wish companies would split their shares more frequently. If you look back at the 1990’s, it was the golden era of stock splits. AMZN split its shares 3 times, Intel Corp ( INTC ) split its shares 4 times in the 90s and once again in 2000, Cisco Systems ( CSCO ) split their shares 5 times in the 90s and again in 2000, and Microsoft ( MSFT ) split their shares 4 times in the 90s.

There are several reasons why stock splits are welcomed by shareholders and looked at favorably even though the initial value of the companies doesn’t change. Normally when a board of directors declares a stock split, it’s taken as a vote of confidence that its companies share value will continue to increase, which is a bullish indication. AMZN’s share price has reached a level where many investors can’t buy shares as $3,000 for a single share is out of many investor’s price ranges. Too many people look at the share price and not at percentages. A 50% gain is a 50% gain it doesn’t matter if a stock is $30 and goes to $45 or $3,000 and it goes to $4,500. More people would be inclined to purchase 100 shares of a $30 stock because they can acquire more shares instead of buying 1 share of a $3,000 stock. By AMZN splitting its shares 20-1 it makes its shares attractive to retail investors and new investors. With a $140 price tag, volume will increase, which will also increase AMZN’s liquidity in the market as more shares are being traded. Stock splits can also indicate a positive signal to rating agencies which could positively impact the share price.

I believe companies should split their shares, and Apple (NASDAQ: AAPL ) is a perfect example. By AAPL continuously splitting its shares, it’s made […]

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