Amazon's Latest Megacap To Join Stock Split Team

An Amazon logo is seen at the company’s logistics center in Brétigny-sur-Orge, near Paris, France December 7, 2021. REUTERS/Gonzalo Fuentes

NEW YORK, March 10 – Stock splits are becoming fashionable for US mega-caps.

Amazon unveiled a 20-to-1 stock split late Wednesday night, just weeks after Alphabet (GOOGL.O) did the same.

Other companies that have split their shares since 2020 include Apple (AAPL.O), Tesla (TSLA.O) and Nvidia (NVDA.O).

“It’s a bit like following the leader,” said Chuck Carlson, chief executive officer of Horizon Investment Services in Hammond, Indiana. “You had Apple, you had Tesla, and most recently you had Alphabet.”

Amazon announces 20 to 1 split

While a company may decide to split its shares for a variety of reasons, the lower price could make the stock more attractive to some investors, analysts said.

While the stock split “does not affect the company’s fundamentals,” it “could boost liquidity by making shares more accessible to a wider range of investors,” analysts at BofA Global Research said in a note.

BofA found that splits are “historically bullish” for companies that implement them, with an average year-over-year return on their stock of 25% compared to 9% for the market as a whole.

“After the split, investors who wanted to get or increase a stake may start rushing for buying opportunities,” BofA said in a note.

Reuters Graphics

The stock split also significantly reduces the value of contract trading options, which have been increasingly used by individual investors in recent years and, according to some analysts, have the potential to attract more retail players to the stock.

For Amazon, the split could also be a way to boost stock returns. The company’s shares hit their lowest closing level since June 2020 on Tuesday and are still down 20% since mid-November amid a broad drop in growth stocks. Amazon shares rose nearly 6% on Thursday after the company also announced a $10 billion buyback plan. More

Amazon continues to have the biggest impact on the market cap-weighted S&P 500, with a market value of around $1.5 trillion.

Reuters Graphics

As with Alphabet, Google’s parent company, which announced its split, investors have been speculating whether Amazon’s stock split could pave the way for its inclusion in the Dow Jones Industrial Average (.DJI). Amazon’s current price of around $2,900 per share is too high for the blue-chip Dow, which is a price-weighted index, meaning expensive stocks have undue influence.

The split would lower its share price to about $145 a share, placing it in the middle of the 30-member Dow, whose most expensive component is UnitedHealth Group (UNH.N), at about $485 a share.

“Does Google or Amazon care about becoming a Dow stock like Apple?” asks Nicholas Colas, co-founder of DataTrek Research, in a research note. “From a purely financial point of view, probably not; very little capital is indexed on average.”

However, Colas added: “In terms of corporate recognition, the answer is likely to be ‘maybe’.

Reporting by Lewis Krauskopf; additional report by Saqib Iqbal Ahmed; Edited by Ira Iosebashvili and Jonathan Oatis

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