(NASDAQ:AMZN) is ready to split their shares on June 3rd, 2022. Amazon’s stock prices have risen about 16% in the week leading up to the split. Even if you know nothing about the intricacies of how a split works, this feels significant. Any bit of news Jeff Bezos is attached to these days feels like it should be common knowledge. So, what do you, and the man with hundreds of billions of dollars stand to gain (or lose) from the split?
Whether you own already or buy as soon as you read this article, you won’t lose anything from the split. How a split works, is the company divides its existing stock into multiple shares to boost liquidity. An added benefit is that the new, lower price will now be more attractive to buyers. The total dollar value of the shares remains the same.
So, if the total dollar value of the shares remains the same, and you and Bezos aren’t set to lose anything, what’s to gain? While nothing is a certainty, history tells us… a lot. A split announcement typically is seen as a sign of confidence from a company, and consequently, shareholders (both existing and potential).
Amazon is perhaps the largest, most well-known company in America. Their price as of June 2nd, the day before the split, closed at $2,510.22. That number is daunting to new investors and doesn’t make the stock appealing to the masses. If only there was another company with a high-profile billionaire/celebrity CEO who announced a stock split in recent history…
OH! In early August of 2020 Elon Musk’s company, Tesla (NASDAQ:TSLA), announced an upcoming 5-for-1 stock split. In the three weeks following (up until the effective split date) shares gained 80%. For reference, Amazon’s shares are up over 21% since their split announcement.
In the months following Tesla’s split, shares jumped from $418.32 on 9/4/2020 to $599.04 three months later on 12/4/2020. While this may be an extreme example, it may be the closest parallel we have to Amazon, given the split ratio, price, company size, etc. There are plenty of other models to choose from and compare. However, it’s certainly not uncommon. Data from BofA Research Investment Committee, Bloomberg - showed companies that split outperformed the S&P 500 by 16.3%
Another split to be on the lookout for is Google’s (NASDAQ:GOOGL) upcoming 20-for-1 split, set to execute July 15. Since the announcement, Google has easily outpaced the Nasdaq Composite.
