Blog Posts

Is Amazon Stock Going to Split?

After hitting the all-important price of $1,000 per share in June 2017, Amazon.com Inc. (AMZN) has caught fire, soaring as high as $1,763.10 per share over the past year. An initial investment of $1,000 in Amazon a decade ago is now worth over $20,000, and there appears to be no end in sight for the Amazon stock strong performance.

With such high share prices, the obvious question for investors is if (or when) Amazon stock is going to split? The short answer is that aside from Amazon CEO Jeff Bezos, nobody knows. Despite three splits in Amazon’s early days, the days of a stock splitting shortly after hitting $1,000 per share are mostly over.

Why Amazon is reluctant to split its stock

One reason for the shift in approach is Amazon embracing the idea that allowing your stock to climb to extreme value is viewed as an elite status symbol. This phenomenon is especially true among trendy companies with strong consumer bases like Amazon, Apple, and Alphabet (the parent company of Google). From Wall Street to Main Street to Silicon Valley, high valuations are a primary status symbol that helps maintain a company’s elite brand identity. In other words, the top stock value is necessarily a company engaging in a massive humblebrag.

Additionally, a stock price over $1,000 is a sign of the company’s dominance. For example, Amazon now accounts for nearly ten percent of all general merchandise sales in the United States, except for food, gasoline, automobiles and restaurant meals, according to data presented by Barron’s. And believe it or not, that extraordinary percentage is growing.

Finally, by choosing not to split its shares, Amazon is providing investors and analysts a clear roadmap of their past performance. Without the need to factor in stock splits, virtually anybody can see how Amazon has performed with a simple Google search. This simplicity allows customers and would-be investors to see Amazon’s value with the own eyes without any need for a professional analysis, which fuels investor confidence.

Amazon Stock – Unintended consequences can hurt young investors

All of those reasons for Amazon’s reluctance to split their stock sound great- unless you want to invest in Amazon and don’t have $1,700 to spend on a single share. The unintended consequences of Amazon’s policy put investors with limited resources, especially younger investors, at a competitive disadvantage. When asked specifically about a potential stock split to allow all investors access to Amazon at a lower price, Bezos was unwilling to commit to anything beyond a vague ‘maybe.’ How can you share in the benefits of Amazon and other highly-valued stocks if you are investing on a budget?

While Amazon may have their reasons for not splitting, stock splits, in general, are on the decline. While 93 companies divided shares two decades ago, only six companies in the S&P 500 Index split their shares in 2016. One reason for the decrease in stock splits is the increase of financial vehicles like mutual funds as compared to buying and selling whole shares of a single company. Stock splits can also lead to increased brokerage fees, which most institutional investors would prefer to avoid.

New apps like Stockpile level the playing field

Fortunately, there are now services like Stockpile that allow you to purchase fractional shares of stock with no strings attached. For example, if your goal is to invest $170 per week, you can easily buy one-tenth of a share of Amazon stock per week through the Stockpile app and let the earnings and dividends rollover to increase your position over time.

You may not be able to afford to buy whole shares of Amazon at once, but by automatically purchasing fractional shares based on your budget, you will be able to build your portfolio any way you want. But if you can get fractional shares instead of whole shares, does it matter whether or not Amazon decides to split their stock anyhow?

You Might Also Like

No Comments

    Leave a Reply