will amazon split stock
Source: istock

Is Amazon Due for a Stock Split This Year?

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Aug. 20 2020, Published 12:12 p.m. ET

Amazon, a cloud-computing and e-commerce giant, hasn’t split its stock price for a while. Amazon had a 2-for-1 stock split in September 1999 when it was a small company with big dreams. However, the situation is a lot different right now. Amazon trades for about $3,260 per share. The company's market capitalization is $1.6 trillion.

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Technology stocks have rallied to all-time highs in 2020. Investors are betting on stocks like Amazon, Apple, and Google owner Alphabet during the COVID-19 pandemic. Due to a significant rise, some technology stocks are getting too expensive for retail investors. In July, Apple announced a 4-for-1 stock split to bring in new investors. Amazon might be due for a stock split too.

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Will Amazon split stock?

A stock split is a strategy deployed by companies to boost liquidity in their stocks. With a stock split, the stock price per share drops to make it affordable for retail investors to purchase. Although the number of a company’s shares outstanding in the market increases by a specific multiple, the company's total value remains the same. The company’s market cap remains constant after a stock split. 

For example, a company has 50 million outstanding shares at $500 per share and a market cap of $25 billion. The company executes a 5-for-1 stock split and increases its number of outstanding shares to 250 million. The company's total value remains constant, at $25 billion, and each share is now worth $100. If you owned 20 shares at $500 per share before the stock split, you would now own 100 shares worth $100 per share. Your investment is still worth $10,000.

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Will Amazon Split Stock
Source: Pixabay

Amazon shares currently trade near $3,260. The last time the tech company split its shares was in September 1999. The company may follow Apple’s footsteps and do a stock split. Jim Cramer, CNBC’s Mad Money host, has identified 10 stocks due for splits this year, including Amazon and Alphabet.

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Cramer said, “If you want the market to keep climbing, these ten companies — and many more — need to start taking their cue from … Tim Cook and Elon Musk.” He added, “Remember, the size of the price tag matters with this [young investing] crowd…you want this no-commission paying crowd in your stock.”

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Amazon's stock price history

Year-to-date, Amazon stock had risen by 75.5 percent as of Wednesday. Amazon stock has hit record highs several times in 2020. In 1997, Amazon stock was listed on the NASDAQ with a starting price of $18 per share.

amazon might consider stock split
Source: istock
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Amazon stock was split three times. The company announced its first 2-for-1 stock split in 1998. The second stock split was a 3-for-1 split in January of 1999 after the stock surged about 755 percent in seven months. The last 2-for-1 stock split was announced in September of 1999.

Apple and Tesla stock splits

By completing a 5-for-1 stock split at the end of this month, Tesla, which currently costs about $1,878 per share, will trade around $375. Apple is hovering near $463. Apple will see its stock price fall to about $116 following its 4-for-1 stock split.

One stock in Tesla will be worth five after the split. In comparison, one stock in Apple will be worth four after the split.

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