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America’s e-commerce giant Amazon will have a 20-to-1 stock split, post which, each stock will trade at $122. Analysts share the bullish outlook of this stock split.
Don’t be surprised if you see your $2,500 Amazon.com Inc (NASDAQ: AMZN) stock trading for a meager $122 starting Monday, June 6. Not, this isn’t a 95% price collapse overnight. It’s an Amazon stock split.
Amazon Stock Split
In fact, the AMZN is splitting 20-for-1 as per the announcement made by the company earlier in March 2022. As the price of AMZN stock reduces to 1/20 starting today, owners of Amazon shares will get 20 shares for every single share in their account.
During the post-pandemic rally on Wall Street, the Amazon stock witnessed a major price surge. At $2,500 per share, the AMZN stock might be unaffordable to several retailers. Thus, the stock split will help to boost retail participation in a big way. Many companies often announce such stock splits to make shares more affordable to a large number of investors.
Tech competitor of Amazon Alphabet (NASDAQ; GOOGL) has also announced a 20-to-1 stock split scheduled in July. Currently, one GOOGL stock is trading at $2,300 per share.
Note that the stock split just reduces the per-share price. However, Amazon’s valuation will continue to stay at $1.3 trillion. Over the last year, some of the biggest companies on Wall Street have gone for a stock split. Michael Mullaney, director of global markets research for Boston Partners calls it a “smart move”. Speaking to CNN, he said:
“Retail investor trading has increased dramatically over the past year and a half and has become very important again. It’s not just big institutions and hedge funds. But it’s impossible for an average investor to buy 100 shares of some of these stocks at these prices.”
Getting Entry to Dow Jones
Before 2015, Apple Inc (NASDAQ: AAPL) stock was trading at a very high price. However, soon after the stock split, the company got an entry into the Dow Jones Industrial Average (INDEXDJX: .DJI).
Dow Jones, the prestigious group of 30 leading American companies, is price-weighted instead of market cap-weighted. Thus, at the current price, it becomes difficult to add Amazon and Alphabet to the index. The stock split will most probably solve this issue.
Many analysts think that the AMZN share could rally post the stock split. The AMZN stock is already down by more than 25% year-to-date. Apart from the boost to retail participation, there are other things that can boost the AMZN stock price.
Despite recording a $3.2 billion loss in Q1 2022, Amazon’s AWS cloud business is doing pretty well. The business is likely to continue to grow which could be a net positive for the stock price. On the other hand, the company’s e-commerce sales have witnessed a major jump due to the pandemic. Thus, retailers have been rushing to advertise on Amazon.com which brings another major revenue stream for the company.