Amazon announced a 20-for-1 stock split. Here’s what that means and how it will impact investors (2024)

FAQs

What happens in Amazon 20 to 1 split? ›

Amazon's most recent stock split

It was a 20:1 split, which is notable because stock splits are often 2:1 or 3:1. For each share an investor-owned, they received 19 additional shares. The 20:1 ratio dwarfed all previous ratios in the company's prior stock split history. Amazon's stock has split four times in total.

When a company splits its stock, that means it divides each existing share into multiple new shares. In a 20-1 stock split, every share of the company's stock will be split into 20 new shares, each of which would be worth one twentieth of the original share value.

A stock split lowers its stock price but doesn't weaken its value to current shareholders. It increases the number of shares and might entice would-be buyers to make a purchase. The total value of the stock shares remains unchanged because you still own the same value of shares, even if the number of shares increases.

A stock split does not change the value of the company, rather it spreads that value across more shares. But splits have a downside. While the total market capitalization remains unchanged, stock splits result in a lower price point for each share.

It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.

The move was the first in over 20 years, but the 20-for-1 split reflected the stock price's massive growth over that period. It's returned about 24% since its most recent split. Amazon faced pressure across several segments over the past few years, but it looks like it's emerging in excellent shape.

The Bottom Line

Although the number of outstanding shares increases and the price per share decreases, the market capitalization (and the value of the company) does not change. As a result, stock splits help make shares more affordable to smaller investors and provides greater marketability and liquidity in the market.

Do stock splits benefit investors? – It's nice to own more shares after a split, since the reduced per-share price might mean there's room for greater potential price growth. But investors shouldn't buy a stock simply because they hope it'll rise in price after a split.

A stock split does not change the value of a stock because it does not change the fundamentals or growth prospects of the underlying company.

Disadvantages of a Stock Split

A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.

Does stock split affect ownership? ›

In other words, every investor who owned shares prior to the split now owns twice as many as they did before. Of course, since every investor owns twice as many shares, everyone maintains the exact same percentage stake in the company.

Using Amazon's 20-for-1 stock split as an example, existing shareholders will get 20 shares for each share they currently own. When a company divides each existing share into 20 new shares, that also means that each share is now worth one twentieth of the original value.

Amazon is trading at a price of about $3000 USD per share (as of March 25 2022). After the 20:1 split, if you own 1 share of Amazon, you will get 19 more shares. The price of the original share currently, at about $3000 will be divided by 20, so that a share costs $150 after the split.

Because Amazon's last such split was more than 20 years ago. As Amazon shares soared -- eventually reaching more than $3,000 in recent times -- investors speculated about a potential split. So when the company finally announced the move, it grabbed everyone's attention.

The announcement sent Amazon shares up more than 6% in intraday trading Thursday, to more than $2,900 each. Stock splits usually happen when the price of a company's shares has gotten very high. In a stock split, a company divides up its shares to lower their price and increase the overall amount of shares available.

So investors of GOOGL will receive 20 shares for every one share they owned, at a fair value price. For example: Lets assume I own 10 shares of GOOGL, which is trading at $2,865, worth $28,650. After the date given I will own 200 shares of GOOGL, but the price of each share will be 1/20th of the price before the split.

Amazon announced a 20-for-1 split in mid-March. That means investors holding one Amazon share received 19 additional shares. At a pre-split price of about $2,000, the operation brought Amazon stock down to about $124.

Amazon on Wednesday said its board of directors has approved a 20-for-1 stock split. It's the first split since 1999 and the fourth since Amazon's IPO in 1997. The company also said its board has authorized Amazon to buy back up to $10 billion worth of shares.