Amazon’s stock got a lot more affordable Monday after a 20-1 stock split sent shares to their lowest price since 2010. It’s the first time the trillion-dollar company has split shares this millennium.
In turning one share into 20, the price of a share went from $2,447 to $122.35, but buzz over the split had the new, lower price surging several percentage points in the first couple of hours of trading Monday.
A stock split doesn’t change the value of a company, as it’s basically the equivalent of trading a $20 bill for 20 $1 bills.
Why companies split shares
One reason companies like Amazon split shares is to give more investors entry access into one of the biggest companies in the world. An individual investor may not have more than $2,000 to invest in a single share of Amazon but may be willing to invest a little more than $100, which is all it costs now. It also allows active investors to increase exposure to the company at a fraction of the price.
In addition to being more appealing to individual investors, the move can also be very lucrative for the company. According to Bank of America research, S&P 500 companies that split shares return 25% on average over the next 12 months, compared with a 9% average annual index return.
Who’s next?
Amazon is not the only major company looking to entice new investors with a lower share price. Shareholders of Alphabet, Google’s parent company, just authorized a 20-1 stock split July 15, while Tesla shareholders are set to vote on whether to split shares later this summer.
