To capture the attention of ordinary investors and Wall Street index makers, Amazon’s stock is splitting—not in half, but in 20 bite-sized pieces. It’s the first time the stock has split in almost 20 years, during which time the company’s stock price has increased by 50 times.
The 20-to-1 stock split, if authorised by Amazon shareholders, will significantly lower the internet giant’s notoriously high share price. One share of Amazon stock costs around $3,000 now. If the split is approved by the company’s shareholders, the stock will tumble to around $150 per share. This should attract new retail investors and even earn it a place in the Dow Jones Industrial Average.
On March 9, the company announced the split and a new $10 billion stock buyback in an 8-K filing with the US Securities and Exchange Commission. In after-hours trade, Amazon’s shares gained over 7%.
Companies split their stock for a variety of reasons.
Splitting a stock is mostly a marketing strategy for making a high-priced stock more appealing to ordinary investors who might be interested in purchasing it. Existing investors may be pleased as well, as the amount of shares they own may be multiplied. The split will “provide our workers more flexibility in how they handle their equity in Amazon and make the share price more affordable for others wishing to invest,” Amazon stated in a statement to Quartz. Amazon’s stock has been divided three times, the most recent in 1999, when the company was five years old. If the company’s board of directors approves at a meeting later this month, the latest split will go into effect in early June.
The development of no-fee trading on major brokerages and apps like Robinhood sparked a retail trading boom during the pandemic economy, prompting some of the largest publicly traded internet companies to split their stock in recent years. On the same day in August 2020, Apple and Tesla split 4-to-1 and 5-to-1, respectively. In July 2021, the graphics chip firm Nvidia split 4-to-1.
While Amazon’s 20-to-1 split is remarkable, it’s not unheard of. Last month, Alphabet, the internet search and advertising behemoth that owns Google, proposed a 20-to-1 split. As of March 9, its stock was trading at around $2,600 per share. The stock splits might also be a way for Amazon and Google to get into the Dow Jones Industrial Average, a 30-company stock index that tends to exclude high-priced shares. If the goal is to attract more retail investors, the benefits of such membership could be a tiny but significant boost.