Ever wanted to own Amazon … but thought the share price was too high for your budget?
Good news for you! On June 6, Amazon will become 20x cheaper because of the pre-announced corporate stock split!
What is a 20:1 Stock Split?
If you trade Amazon shares, or you always wanted to, then this is something that you should know!
A stock split is a corporate event that increases the number of shares of the company and at the same time will reduce the price of the share accordingly.
What will happen to the current shareholders?
This event does not result in any shareholder losing money since the shareholder who, for example, had 1 share with a market value of $2,400 will now have 20 shares with a market value of $2,400. So when the stock split event does take place and you open your app to check the price no need to panic if you see the price adjusted from $2,400 to $120! Your 1 share valued at $2,400 is now 20 shares at $120…so you still have $2,400 worth of Amazon shares in this case.
Why do companies make a decision to split their stock?
Stock splits increase market liquidity and make the shares more accessible:
- After a share price has a long period of price increases, and in order to increase the market liquidity and make the stock more affordable to retail investors, the company may make this decision.
- Stock splits make the market capitalisation look better. It will not increase the market capitalisation, but it could attract investors who prefer the lower price which could drive up the market capitalisation over time.
The bottom line
The Amazon share price split could be seen as a way to widen the company’s investor base by making the shares more affordable which will allow more investors to participate in the future success of the company. Let’s hope that Amazon as a business will continue to grow from strength to strength!
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Not investment advice. Past performance does not guarantee or predict future performance.
