The e-commerce giant's shares now trade at a much more modest-looking level.
Amazon (AMZN -1.64%) 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
A stock split makes shares more accessible to more investors and boosts liquidity for the company. A stock split can be a good time to buy shares in a company since the shares will be more affordable. It can also be an indicator that the company's value will continue to grow.
Was Amazon ever $3000 a share? ›
Amazon split its shares last summer when its price tag reached over $3,000.
What stocks are most likely to split in 2024? ›
3 Potential Stock Splits to Add to Your 2024 Radar
- Broadcom (NASDAQ:AVGO) is the most expensive stock on this list on a per-share basis. ...
- Deckers Outdoor (NYSE:DECK) is another that needs a stock split. ...
- Nvidia (NASDAQ:NVDA) is no stranger to the spotlight after gaining almost 2,000% over the past five years.
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.
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.
Is a stock split good or bad? ›
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 if I bought $1000 shares of Amazon in 1997? ›
As impressive as that is, original investors in Amazon fare even better. If you had invested $1,000 during Amazon's IPO in May 1997, your investment would be worth $1,341,000 as of August 31, according to CNBC calculations. That's better than the so-called FAANG stocks, plus Ebay – which debuted in that same period.
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.
Who owns the most amount of Amazon stock? ›
Founder and former CEO Jeff Bezos is the largest Amazon shareholder, with more than 937 million shares, which represent a stake of about 9% in the company. Bezos' shares are worth an estimated $166 billion.
Which stocks will double in 10 years? ›
9 Best Growth Stocks for the Next 10 Years
- DaVita Inc. ( ticker: DVA)
- DraftKings Inc. ( DKNG)
- Extra Space Storage Inc. ( EXR)
- First Solar Inc. ( FSLR)
- Gen Digital Inc. ( GEN)
- Microsoft Corp. ( MSFT)
- Nvidia Corp. ( NVDA)
- SoFi Technologies Inc. ( SOFI)
Stock splits neither add nor subtract fundamental value. The split increases the number of shares outstanding, but the company's overall value does not change. Immediately following the split the share price will proportionately adjust downward to reflect the company's market capitalization.
What is the next big stock to split? ›
Upcoming and Recent Stock Splits
| Stock | Exchange | Ratio Numerator |
|---|
| CMG | NYSE | 2024-06-26 |
| SABA | NYSE | 2024-06-24 |
| SSKN | NASDAQ | 2024-06-07 |
| BNR | NASDAQ | 2024-05-15 |
85 more rowsAmazon is a forever stock, and it has many opportunities coming at it from its different businesses. It's still the king of e-commerce that started the whole story, and e-commerce continues to increase as a percentage of total retail sales.
Is AMZN a buy right now? ›
In Amazon's case, its P/S makes it one of the best-valued stocks in the cloud market and, potentially, AI. Alongside booming e-commerce and advertising businesses, Amazon stock is a no-brainer buy right now.
What was the value of Amazon stock before the split? ›
Trading began at the new price as of June 6. 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.
Has Amazon stock ever been $2000? ›
Amazon stock hit $2,000 per share for the first time Thursday.
Should I buy Amazon stock before the split or after? ›
It's important to note, especially for new investors, that stock splits don't make a company's shares any better of a buy than prior to the split. Of course, the stock is then cheaper, but after a split the share of company ownership is less than pre-split.
How does stock split work? ›
In a stock split, a company divides its existing stock into multiple shares to boost liquidity. Companies may also do stock splits to make share prices more attractive. For shareholders, the total dollar value of their investment remains the same because the split doesn't add real value.
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