By market open on Monday, May 3, Amazon shares hit a whopping $3,412.78. That’s not even as soaring as the 52-week high of $3,554.00. With the third-highest stock value on the market, it’s no wonder that Amazon stock split rumors are circulating.
Amazon’s stock hasn’t split in decades, so the news of a potential AMZN stock split is big. Here’s all you need to know about a potential split for the e-commerce giant, including what happens when a stock splits and when the speculative split might occur.
TL;DR
- Investors are speculating a potential Amazon stock split as the security soars well into the four-figures.
- A stock split increases the number of shares an investor holds, but the value of the total equity remains the same.
- This corporate move could make Amazon shares more affordable for the general public, without traders having to use fractional investing.
- Amazon’s stock hasn’t split since 1999, when the company enacted a trio of splits in a 15-month period.
- Per their latest earnings release, Amazon is doing better than expected, with a 44% growth in net sales YoY.
- The company hasn’t commented on whether or not there will be an AMZN stock split in 2021. Investors are keeping their eyes on the stock to see if the legitimacy of the rumors changes.
What happens when a stock splits?
When shares for a public stock start to get expensive, the company may be inclined to split the stocks by a certain ratio. This corporate action increases the number of shares while simultaneously decreasing the price per share.
For shareholders, the total value of the position stays the same. However, it’s broken up differently. An investor may have initially purchased 100 shares but now has more due to the stock split. Each share’s market value decreases by the same ratio in which the number of total stocks increases.
Each stock split has a split ratio, which can look like 2-for-1 (or 2:1).
A 2-for-1 split would give shareholders two shares for every one share they previously held. Common ratios for splits include 4-for-1 and 8-for-1 (and sometimes even higher).
This action can also take the form of a reverse stock split, which increases the price per share for penny stocks trying to increase their perceived value or stay listed on an exchange.
Did Amazon announce a stock split?
Amazon has not announced a stock split. Despite that, Amazon stock split speculation is front and center in the marketplace.
Beyond just listening to the analysts, you can actually visualize this speculation. Last week, options traders were placing calls at a higher volume than normal. This means they expected shares to increase to a specific strike price.
Puts occur when options traders expect a stock to decrease to a lower strike price than the current market value. When calls occur at a higher rate than puts, it’s clear that the public is rooting for a stock. Such is the case with AMZN shares after the Amazon stock split rumors began.
Amazon stock has been particularly bullish in the eight weeks since March 8, when the stock increased 15.5% from its lowest point in months. Recent talk about a potential split has only fed this flurry.
Amazon’s last stock split was more than two decades ago
CEO Jeff Bezos founded Amazon in 1994 and took the company public less than three years later at a starting price of $18 per share. Looking at the full 24-year chart shows massive momentum, with total lifetime returns amounting to 196,952.6%.
Investors should always keep in mind that past returns don’t guarantee future results, even when those past returns are as wild as this.
AMZN stock split history dates back more than two decades, with three splits in total:
- June 2, 1998: 2-for-1
- January 5, 1999: 3-for-1
- September 2, 1999: 2-for-1
All three of these splits occurred in just a 15-month period. Pre-1998 investors would have 12 times the number of shares they originally purchased pre-split.
Why Amazon stock split rumors are swirling
There are a lot of factors that play into these kinds of rumors, especially now that people use social media to talk about the market. A high level of corporate performance, an ever-increasing share price, Bezos’ own wealth, and continued company growth all contribute to the conversation. Additionally, media coverage is ramping up around the topic, with platforms from CNBC to Fox News covering the unconfirmed split.
Investors have been wondering whether a stock split is en route for the past year, though it’s not an unfamiliar conversation—especially around earnings season. More recently, Amazon’s Q1 earnings report has reignited the conversation.
How Amazon earnings for Q1 play into the speculation
Every quarter, a public company releases an earnings report that digs into their current financial and operational health. The income statement is a big part of the picture since it includes numbers like sales, revenue, and net profit.
With the most recent earnings, Amazon’s bottom line continues to surge given the boost in e-commerce spending since the outset of the COVID-19 pandemic.
Amazon showed a 44% increase in net sales YoY (or $108.52 billion for the quarter) made up from e-commerce, advertising, and cloud computing offerings. Ultimately, their report amounted to an earnings per share (EPS) of $15.79. This is about 61.9% higher than some official estimates.
The company expects this propulsion to increase in the coming quarter as their more than 200 million Prime members continue their streak of loyalty. Such strong growth is often consistent with a stock split.
Will the AMZN stock split happen in 2021, and when can investors expect it?
As Rick Munarriz of The Motley Fool puts it, “It’s time for Amazon to party like it’s 1999.”
Since the company hasn’t commented on the legitimacy of stock split claims, it’s hard to say if or when it will happen. Bezos is planning to step down as CEO in the third quarter, with Andy Jassy to take his place. Speculators might suggest that this shift in leadership would make for a decent time to split the stock.
Recently, members of the media suggested it might happen when Amazon reveals their Q1 earnings, but that date has come and gone. Shares dropped about 3.4 percent by Monday after the initial earnings buzz.
A stock split could still possibly happen this year, but investors will have to keep their finger to the pulse to know for sure.
If the split becomes official, the news will be all on it—and investors can find it on the Nasdaq stock split calendar.
Could a stock split get Amazon in the Dow Average?
The Dow Jones Industrial Average is a price-weighted index that includes 30 blue-chip companies. These companies span industries (though the Dow doesn’t include transportation or utilities).
Because it’s a price-weighted index, the Dow isn’t going to include a multi-thousand-dollar stock. Amazon would have to do a serious stock split similar to Apple’s 7-for-1 split less than a year before being added to the Dow. It’s not unheard of, but getting on the Dow may not be Amazon’s key focus (even if it does contribute to the company’s perceived standing).
Beyond that, a split could help Amazon attract a different class of buyers. Despite the fact that fractional shares are readily available on many platforms, a lot of investors feel like they can’t afford to trade such a high-value stock. Reducing the price opens up a world of demand and helps to increase overall stock market democratization.
Try our fractional shares calculator to find out how much Amazon stock you can swing.
However, Amazon may be letting their stock increase in price to add a layer of elitism to the stock. People often perceive a higher price as greater value.
What this means for Amazon investors
Stock splits tend to generate a lot of buzz, especially when they involve blue-chip companies like Amazon. Whereas a reverse stock split might be a potential sell signal, a regular stock split may make it seem like a favorable time to buy in for many investors.
Stock splits don’t inherently increase the value of a shareholder’s position. For every amount a single share multiplies, each share loses an equal amount of value. Even so, these actions can cause the market value of the stock to increase simply because so many investors are interested in it.
It’s important not to get caught up in the hype, instead making educated trading decisions based on earnings results and projections. Risk-aware investors love when the hype and the data line up.
Bottom line
As an e-commerce platform, Amazon prides itself on low prices. As a public company, they’re known for four-figure stock prices that are surpassed only by Berkshire Hathaway Class A Common Stock and NVR Inc.
This contrarian take on the company’s mission has led many investors to mull over Amazon stock split rumors. While there’s no official word from Amazon executives themselves, it’s a possibility than many traders are willing to bet on.