Amazon stock split: Will it help the share price rebound?
Amazon (AMZN) revealed a 20-for-1 stock split in filings to the US Securities and Exchange Commission (SEC) on 9 March — after the filing, the company's stock rose 24%.
Stock splits are becoming commonplace among other tech giants, such as Google’s parent company Alphabet (GOOGL), who have been keen to kick life back into stocks that have dipped since the beginning of 2022. With a lower price, an individual stock may appear more attractive to a retail investor.
Amazon's stock split took place on 3 June 2022, marking the fourth such event since the company became public in 1997. Each AMZN shareholder received 19 additional shares for every one share held at the close of business on 27 May. Trading resumed on 6 June, and Amazon's post-split adjusted stock was well-received by the market, showing gains of 2% and closing at $124.80.
AMZN has since slid due to rising inflation and interest rates hikes, with the latest coming on 15 June, as the US Federal Reserve raised its benchmark interest rate, the federal funds rate, by 0.75 percentage points — the biggest increase since 1994.
At the time of writing on Thursday, 16 June, the stock was trading at $102.80, indicating a 7.22% drop over the past month.
What is a stock split?
Stock splits are primarily used when a company’s share price becomes too expensive for many investors to buy. Consequently, this acts as an investing deterrent, since a smaller number of investors will decide the outcome of the stock through their buying and selling decisions.
The stock-split move reduces the price of a single share while maintaining the overall market capitalisation of the company.
The stock split is apparently a rite of passage for many large companies. In August 2020, both Apple (AAPL) split its stock on a 4-for-1 basis, while Tesla (TSLA) split its shares in line with a 5-for-1 ratio, with the former being Apple’s fifth split. Alphabet announced it intends to split its shares on a 20-for-1 basis on 15 July 2022.
Amazon (AMZN) will join this growing list of tech giants when it splits its stock in a 20-for-one pattern. Investors holding stock in Amazon will receive 19 additional shares of the company, while the price of each share will be divided by 20 before other stock movements are taken into consideration.
Amazon historical stock splits
Amazon will split its shares for the fourth time since its initial public offering (IPO) in 1997, and the first time since 1999. The company carried out three splits in the late 90s, with a two-for-one split on 2 June 1998, a three-for-one split on 5 January 1999 and a two-for-one split on 2 September 1999.
The successive splits occurred during the dotcom bubble, with Amazon continually diluting its shares to bring in a new wave of investors. Each previous split caused a brief rally in the share price as more people bought Amazon stock. This was before the stock saw an ultimate comedown towards 2000, which took several years before it rebounded.
When did Amazon's stock split and why did it happen?
Amazon's stock split came into effect with the close of trading on June 3 — that means that the company's closing price on that day was divided by 20 to accommodate for the increase in the number of shares. The stock began trading on a split-adjusted basis on June 6.
The reasons for the company splitting its stock are no different to those of other companies.
The group’s stock has grown by close to 110% over the past five years, along with other tech stocks in a bull run as the company added robust growth from late 2016.
But growth has slowed, with the stock failing to make much headway since a rally in the stock market in mid-2020. Year-to-date Amazon has disappointed its shareholders with a loss of 39.23% (as of 16 June) amid wider sentiment shift away from risk-on assets.
Splitting its stock provides one avenue to alleviate bearishness for the group. This should make shares more affordable to the average investor, thereby stimulating increased trading volumes.
The company is also planning a $10bn share buyback along with the stock split, further increasing the value of its stock for investors. Shares in Amazon rose 5.41% after the announcement, as those with the means to own Amazon stock got in ahead of retail investors.
“Amazon’s stock split speaks volumes about how the world of trading has changed. While such a move doesn’t mean too much for existing shareholders, it makes individual shares more accessible to everyday investors,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, in a note.
“The existential rise of low- and zero-fee trading apps means stock splits are more important than they have been for a while. Of course, Amazon isn’t the first tech name to announce a split in recent times, with fellow corporate giants already having made the decision, including Google’s parent, Alphabet,” Lund-Yates concluded.
Indeed, the rise of retail traders means Amazon could stand to gain from its stock split. According to website Business of Apps, the number of retail investors using mobile apps "has steadily increased, with a surge in 2020 due to the coronavirus pandemic and the rise of meme stocks. Users are expected to increase to over 150 million in 2021.”
That data comes before the historic short squeeze on Gamestop (GME) and AMC Entertainment Holdings (AMC), which drove more retail traders towards apps, accounting for 38% growth for Robinhood in the first half of 2021.
The average account size on the highest-profile trading app, Robinhood, is estimated to be around $3,500, meaning the average app user would have to spend nearly their entire portfolio on a single Amazon share. The dilution of shares towards a much more affordable range should inspire previously locked-out investors to invest in Amazon stock.
Data from Barclays in July 2021 suggested UK retail investors were primed to increase their investments by 19% per month, a trend likely carried over from growth in the US market.
Amazon may hope these retail traders will bring their classic tendency for risk to the table, and help jumpstart a flagging tech sector in the US.
Meanwhile, the Nasdaq 100 (US Tech 100) is down 32.3% since the beginning of January as Russia’s invasion of Ukraine added to fears over monetary contractions and stagflation. These factors saw investors fly out of risky stocks and into safe havens such as the US dollar and US bonds.
According to research from Schroders, the profile of investors has grown riskier in line with the surge of retail investing, with more than a third of respondents planning to invest in riskier assets. Among these, 44% of those aged 18–37 — the key retail investing demographic — planned to engage in risky investing.
Thus, Amazon shares, down 39.23% in 2022, could quickly become part of retail investors’ portfolios where they are specifically skewed towards equity risk.
Will Amazon's stock split boost the shares?
Amazon's shares were revalued at $120 per share in early June, after trading above $2000 before the stock split came into effect.
AMZN closed 2% higher on its first day of post-split trading at $124.80 on Monday, 6 June, after hitting an intraday high of $128.70 early in the session. Shares had risen close to 8% in the five days leading up to the split.
The company's stock has since dropped to $102.7, as pessimism has replaced optimism in the market following the Federal Reserve’s three-quarter point rate increase on 15 June. Investors are concerned that rising inflation — and the Federal Reserve's response to it — could possibly drive the US economy into recession.
This is due to the fact that rising interest rates slow down the economy — any type of economic slowdown will mean that tech companies will likely grow at less rapid rates than they are now. Amazon's earnings will also be worth less than they could have been if inflation was lower. Reduced consumer spending and potential layoffs are also a factor affecting market sentiment.
Russ Mould, investment research director at AJ Bell, offered a word of caution with regard to the stock, empasising the importance of the company's fundamentals.
“Amazon’s management is looking to instil fresh confidence with a 20-for-one stock split and a $10bn share buyback – the first direct distributions of cash back to the company’s shareholders since its 1997 stock market listing,” Mould said in a note.
Mould said investors should question to which degree the stock split and repurchase is financial engineering rather than investment in the service proposition and competitive position of the company.
He added: “The bull case for Amazon has long been that it will win customers and take share, demolish the opposition and then jack up prices when it has a dominant market position, turning itself into a wildly profitable cash machine. It is the service offering that has made Amazon such a compelling long-term investment thus far, so would the money not be better spent there?”
39 analysts quoted by Nasdaq maintained a consensus 'Strong Buy' rating on the stock as of 16 June 2022. The analysts' average 12-month price target was $178.66 with a maximum estimate of $212.5 and a minimum estimate of $107.
Bank of America analyst Justin Post maintained a 'Buy' rating and $188 price target on AMZN on 6 June.
Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals.
Keep in mind that past performance doesn’t guarantee future returns, and never invest or trade money you cannot afford to lose.
How do you invest in Amazon?
Amazon stock is listed on Nasdaq and you can buy it via your investing or trading broker. The stock split will not affect the investment process — it will only impact the price by diluting the amount of shares available on the market.
FAQs
Which stocks will split in 2022?
How often has Amazon stock split?
Amazon stock hasn’t split for more than 20 years, with the last split coming in 1999, which at the time was its third split in the space of 15 months. Amazon is unlikely to split its stock again for a number of years.
When did Amazon split last?
Amazon last split its stock in a two-for-one split on 2 September 1999, when its share price was at $119.06.
How much does it cost to buy Amazon stock?
AMZN stock closed at $2,151.14 on 23 May 2022. After the stock split in June 2022, its price will be cut into 20.
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