There has been a bit of a trend among mega-cap tech stocks, with Apple (AAPL), Tesla (TSLA), and Google parent Alphabet (GOOG) having issued stock splits. Now Amazon (AMZN) will be joining the club, announcing a 20-for-1 split that will take effect on June 6. Amazon’s three previous stock splits happened more than a decade ago, and the company’s shares were up at least 48% in the following weeks.
If you’re ready to open a position with CAPEX.com, here are three steps to follow:
- Decide how to trade AMZN: You can trade via leveraged products such as Contract for Differences (CFDs) or unleveraged fractional shares.
- Decide whether you want to trade before or after the split: To participate in the AMZN stock split, you must open a position on or before May 27.
- Login or open a live trading account: Fill in our simple application form and create a CFD account to start trading in minutes.
For more info about how to take part in the Amazon stock split, you can discover everything you need to know in this guide.
What to Know About Amazon's Upcoming Stock Split
After the March 9 trading session, Amazon’s board disclosed that they had approved a 20-1 stock split and a $10 billion stock buyback. The board said the split would “give our employees more flexibility in managing their equity in Amazon and make the share price more accessible for people looking to invest.”
When a company splits its stock, 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 worth one-twentieth of the original share value.
A stock split does not impact a company’s market capitalization—the combined value of all its shares—and it doesn’t change the value of each investor’s stake in the company. It increases the number of outstanding shares and decreases each share's cost.
How will Amazon stock split impact investors?
Even though stock splits are mostly superficial and don’t change anything about the company, they can make shares appealing to investors.
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 has a market capitalization of $1.09 trillion and 500 million shares outstanding for $2,000
- The company wants to do a 20-for-1 stock split
- Upon completion of the 20-for-1 split, the company will have 10 billion shares for $100
- The unchanged market value of $1.09 trillion, and each shareholder will receive nineteen new shares for each share they held before the split
When Is the Amazon Stock Split Date?
In a filing with the US Securities and Exchange Commission (SEC), Amazon states that the split will occur in early June 2022.
There are three dates to keep in mind. The first is the record date, May 24, 2022. To participate in the split, you must invest in AMZN on or before that day. With the May 24th share price ($2,151), you will receive 20 shares of AMZN valued at $107.55 each for every share you hold. Your account will reflect the stock split by June 3, 2022, and the shares will trade on a split-adjusted basis on June 6, 2022.
How to Trade the Amazon Stock Split with CAPEX.com
A company's share price oscillates following a stock split, making it more or less accessible to a wider range of investors. Many consider the stock split a buy signal leading to an immediate positive price increase. However, stock splits and falling prices do not guarantee that all investors can buy the shares.
CFDs on Shares
CFDs (Contracts for Difference) are financial instruments where you enter a contract with your broker to trade the difference between the opening and closing price of the contract. With CFDs, you can ‘buy’ (go long) the shares if you think the stock’s price will rise, or you can ‘sell’ (go short) if you think the stock’s price will fall. Shorting with derivatives can be an effective way to hedge against downward price movements in your non-leveraged investment portfolio, or it can be a way to generate profits outright from shares that are falling in value. But when you go short your potential losses are theoretically uncapped because there’s no limit on how high something’s price can rise.
In addition, you can trade using leverage, which means you can trade with a relatively small investment. However, it would help if you considered that leverage magnifies both the potential profit and the potential loss.
When you create a CFD account with us, you’ll gain access to 0 commission:
- Individual stock trading - ‘Buy’ (go long) or ‘sell’ (go short) up to 2,000 international shares to speculate on their price rising or falling
- Fractional, unleveraged stock trading - Trade over 50 famous U.S-listed shares without having to worry about any commissions and rollover fees
- Thematic trading - gain exposure to the movements of a specific trend or ‘theme’ such as meme stocks, social media stocks, EV stocks and many other ThematiX
- Basket trading - take a position on a group of stocks simultaneously, grouped together into one index or ETF.
In the past, you would have needed deep pockets to invest in a stock like Amazon. Fortunately, those days are gone thanks to something called fractional shares.
Fractional shares allow you to set the price and decide how much you want to invest. As the name implies, you'll get a corresponding fraction of a share. If Amazon is trading at $2.000 and you only want to invest $20, you'd get 1/100th of a share.
You get the same risks and rewards that you'd get with buying whole shares. If the stock gains value, you make money. If it tanks, your investment loses value. If the company issues a dividend, you'll also get the proportional fraction of the payment.
The big advantage is that fractional shares let you avoid putting lots of money at risk, making them a good choice for beginning investors. Fractional shares can also be a useful tool if you practice dollar-cost averaging, which is where you invest a certain amount on a set schedule. For example, rather than saving up enough money to buy a full share of Amazon, you could decide to invest $25 or $50 a month.
Not all brokerages allow for fractional stock trading. For trading platforms that do allow you to trade fractional shares, the rules vary, as do investment minimums.
With CAPEX.com you can trade from 0.01 (1%) of the share value, meaning that you may need to invest less than $1 in stocks trading below $100. The minimum account opening to trade CFDs on unleveraged, zero commission fractional shares is only $100.
Why Is Amazon Splitting its Shares?
A stock split is one sign that a company is thriving—and there’s no question that Amazon runs a very healthy business. In its 2021 annual report, released in February, Amazon reported revenue of $470 billion, up nearly 22% year-over-year. Net profit was $33.4 billion, more than 56% over the prior year.
While the business is undoubtedly thriving, Amazon’s stock price has fallen around XX% in 2022. Note that this had less to do with Amazon’s performance and more to do with a stock market that has seen a big pullback in the face of big uncertainties over the last three months.
Nevertheless, one share of AMZN still required investors to shell out $XXX at the stock split announcement. That’s a tall order for new investors who want a piece of the action. Sure, some brokerages offer fractional shares of Amazon, but the fact remains that a high share price can be a turn-off for some.
Amazon’s Stock Split Could Help It Get into the Dow
There’s another reason Amazon may be choosing to split its stock right now: The possibility of being included as one of the 30 stocks that make up the Dow Jones Industrial Average (DJIA).
Unlike other leading stock market indexes, the DJIA is a price-weighted index. That means the 30 component companies in the Dow are weighted in the index according to their stock price—rather than their market cap, as is the case with S&P 500 component companies.
The DJIA includes some of the biggest companies by market cap in the U.S. stock market, but they also prefer to maintain a relatively even balance regarding share price. They don’t want high-priced stocks to have an outsized impact on the index’s performance.
“The Index Committee monitors whether the highest-priced stock in the index has a price more than ten times that of the lowest,” wrote S&P Dow Jones Indices, which manages the index, in its most recent methodology statement for the DJIA.
Amazon’s stock split makes it more attractive as a component in the price-weighted Dow. It’s already among the largest companies on earth by market capitalization. At a split-adjusted price of $124 a share, Amazon would be right in the middle of the pack of share prices of current DJIA components.
Will Amazon's Stock Price Go Up After The Split?
It is important to note that share price action following stock splits does not exist in a vacuum. Results from the stock splits of an individual company may be influenced by a variety of factors unrelated to a share split.
Amazon’s previous stock splits
The firm's first stock split took place on June 2, 1998. In the six months following the split, the share price increased more than 300%.
The second split occurred on January 5, 1999. Initially, the stock climbed, but six months later, the share price was roughly the same as on the day of the split.
The last split was executed on September 2, 1999. The price action was similar, and six months after the split, AMZN traded for about 4% higher than on the split date.
There was a degree of volatility following each split that might appeal to traders. In each case, the shares traded significantly higher two and a half to four months after the split was initiated.
Aside from AMZN, several studies indicate stock splits generally lead to share price appreciation.
Since 1980, the shares of companies that do stock splits are typically up 25% a year later, compared to 9% for the broader market, according to a recent study by Bank of America.
Examples of other recent stock splits
The tech behemoth conducted a 4-for-1 stock split on July 30, 2020, when its share price was $380 apiece. The market received the news well, with the price rising 30% three weeks later to USD 497/share.
Apple's outstanding shares rose from 3.4 billion to about 13.6 billion, while market capitalization remained largely unchanged at USD 2 trillion. Apple shares yielded 35% in 2021 and 82% in 2020.
The EV automaker completed a 5-to-1 stock split in 2020. Shortly after the announcement, Tesla's share price climbed 7%, closing the trading session at $1405. In the two weeks following the news, the share price rose 57% to $2,213. Tesla shares gained about 50% in 2021 after a rise of over 740% in 2020.
Is AMZN Stock A Buy, Sell, or Hold?
Even though Amazon is a behemoth, there are ample reasons analysts believe the company can sustain a high growth rate.
Amazon garnered 41% of U.S. e-commerce sales in 2021. Online retail sales are forecast to grow at an annual rate of between 14% and 15% for the next three years, according to eMarketer. While the company's investment in its logistics network over the last two years has weighed on profits, Amazon recently surpassed FedEx in logistics market share in the U.S. This will serve to solidify its commanding position in e-commerce.
Unfortunately, e-commerce generates low margins: however, Amazon's scale propels it into a leading position in advertising, a rapidly growing, high margin business. Along with AWS, Amazon may have two robust, enduring growth sources.
Amazon's advertising business is growing at a robust pace
Advertising sales hit $31.2 billion in 2021. That represents a 58% increase over 2020 and a 146% increase over 2019. To put those numbers in perspective, that's 14 times larger than Walmart's advertising business, and it also exceeds YouTube's revenues ($28 billion).
Furthermore, the advertising market is growing robustly, and digital advertising, in particular, is set to climb. According to GroupM, digital advertising comprised 64.4% of total advertising in 2021. That's an increase from 60.5% of the market in 2020 and up from a 52.1% share in 2019.
Zenith forecasts the global advertising market will grow 5.7% in 2023 and 7.4% in 2024; however, nearly half of that growth will come from the U.S., where Amazon holds a distinct advantage.
eMarketer projects double-digit growth in the U.S. digital ad market for two years.
In addition to these optimistic forecasts, there is ample evidence that Amazon's advertising provides bang for the buck. Businesswire reports that 58% of brands see “great value” in Amazon Advertising, and a study by Feedvisor determined businesses say seven times to return rate when advertising on Amazon.
AWS provides a dependable source of growth
Although Amazon's cloud service only generates a bit over 10% of the company's revenues, AWS provides over two-thirds of AMZN's profits.
Although Amazon’s market share growth has stagnated while Microsoft's (MSFT) and Google's (GOOG) have grown, AWS still commands about a third of that rapidly growing market.
AWS increased sales by 37% in 2019. Growth slowed slightly in 2020 due to the pandemic, rising 30% that year, but revved back up in 2021, increasing by 37%. In Q4, growth for AWS increased by 40%, compared to the same quarter of the prior year. Furthermore, AWS has reported four consecutive quarters of accelerating change.
Perhaps of greater importance is that the cloud market is projected to record double-digit growth for the foreseeable future. Grandview Research forecasts a CAGR of 15.7% from 2022 to 2030. This would increase the current market by 272% over that time frame.
Amazon stock price forecast
The 45 analysts offering 12-month price forecasts for Amazon.com Inc have a median target of 3,700.00, with a high estimate of 4,250.00 and a low estimate of 2,250.00. The median estimate represents a +71.85% increase from the last price of 2,153.10.
The current consensus among 51 polled investment analysts is to buy stock in Amazon.com Inc. This rating had held steady since May when it was unchanged from a buy rating.
If you want full access to our integrated Daily Analyst Ratings and Insiders’ Hot Stocks, sign up for a free account and trade smart with CAPEX.com.
Should you invest $1,000 in Amazon.com, Inc. right now?
Amazon's upcoming stock split is great news because we‘ve mentioned above: It makes it easier for a broader range of investors to buy one full share of the stock. Before the split, those who want to make a small investment in Amazon must go the route of fractional shares.
The stock split itself does not push the shares higher over time. The split doesn't change anything about the company or its financial picture. The market value remains the same.
The stock split could lift the shares a bit in the days following the operation. That's as new investors decide to buy shares or current investors add to their holdings.
The stock split could have a more significant impact if AMZN is added to Dow Jones Industrial Average. This would prompt some ETFs that mimic the index to include the stock in their holdings.
Before deciding to trade in shares, you should take steps to manage your risk. For example, stop-losses enable you to define your exit points for trades against you, while limit orders will close a trade after the market moves by a certain amount in your favour.
We’ve got courses at CAPEX Academy that take you through risk management and how to mitigate your exposure to risk in the financial markets.
Our demo account is a proper place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work and what it’s like to trade with leverage before risking real capital. For this reason, a demo account with us is a great tool for investors looking to make a transition to leveraged trading.
What is a stock split?
A stock split is a process by which a company issues additional shares of stock, increasing its total by a certain number. Typically, a split occurs when a company wants to reduce its trading price to a level more comfortable for investors and increase trading liquidity.
As the name suggests, the number of shares outstanding increases while the total value of the shares remains the same compared to the pre-split value. This process has no impact on the company's market capitalization, and shareholders will have the same voting rights as before.
Why is a stock split important?
Companies that choose to do a stock split have experienced significant growth in the past and are on a long-term upward trend.
In addition, the large number of shares outstanding can lead to high stock liquidity, making trading easier and possibly narrowing the bid-ask spread. Liquidity allows traders and investors to buy and sell company shares without affecting the share price. It can also help companies buy back their shares at a lower cost, as their orders would not cause a share price to rise as much. In some cases, this could mean significant savings.
In theory, the split should not impact the share price, but it often results in renewed investor interest, which positively affects the share price.
After the stock split, the share price will adjust to reflect the company’s market capitalization. If the company pays dividends, the dividend/share will be adjusted accordingly, keeping total dividend payments the same.