Amazon has announced that it will be the latest tech giant to split its shares. Amazon follows Apple, Tesla, and Google (Alphabet), which all have recently split their shares or will soon. This isn’t a first for Amazon (the company’s stock split three times in the 1990s, reports CNBC), but it will be Amazon’s first stock split this century. Here’s what you need to know:
- What’s a stock split? A stock split is when a company has decided to make more shares available in order to reduce the cost of a single share. They achieve this by chopping existing shares up. In a 5-to-1 stock split, for example, a company that originally had 50 million shares would now have 250 million. Each previous single share now becomes five shares.
- How much is Amazon splitting its stock by? Amazon has announced that it will split shares by a factor of 20-to-1. So after the stock split, there will be twenty times the number of Amazon shares in existence than there are today.
- Will owners of Amazon stock before the 20-to-1 split have 20 times the amount of shares once the stock splits? Yep, that’s correct. Say you own 1,000 shares of AMZN today. After the stock split, you’ll now own 20,000 shares.
- Does the 20-to-1 stock split mean the total value of my AMZN shares will increase 20 times? Nope. The total value of your Amazon shares will be worth the same as they were the moment before the split. Though you’ll now have 20 times the AMZN shares, they’ll all be worth 20 times less because there are 20 times the number of shares in existence.
- Does the stock split make Amazon a more valuable company? Nope, again. The stock split itself will not make Amazon a more valuable company. A company’s market cap is determined by multiplying the share price by its total number of shares. Amazon will have 20 times the number of shares, but they’ll all be worth 20 times less, meaning its market cap will remain unchanged from the moment before the split.
- Why bother splitting the stock then? Stock splits serve to make a company with a high share price–like Amazon–cheaper for retail investors. For example, as of the time of this writing, one share of AMZN is worth about $2,930, meaning that someone with $1,000 to invest in the market couldn’t even buy a single share of Amazon. But after the 20-to-1 split (assuming AMZN’s price was still $2,930, for illustrative purposes), a single share of AMZN would only cost $146.50, letting that retail investor buy six shares with their $1,000.
- When do Amazon shares split? In an SEC filing, Amazon says the split will take place “on or about June 3, 2022” for shareholders of record by May 27, 2022. (That means if you owned shares on the last Friday in May, they’ll split on the first Friday in June.) AMZN will begin trading at its new split-adjusted price on Monday, June 6, 2022.