Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) both turned heads in recent weeks when the two companies announced stock splits to make their shares more accessible to a greater number of investors. The prices of both companies’ stocks have surged significantly over the past several years, which partially explains the rationale behind the stock splits. Alphabet and Amazon shares are currently trading above $2,600 and $2,900, respectively. Stock splits would put the two stocks back within reach of individual investors with smaller amounts of capital.
But what are the details of the two companies’ respective stock splits and how will they work? Additionally, should investors buy shares of Amazon and Alphabet because of their upcoming stock splits?
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What are the stock split details?
While the stock splits were announced at around the same time, the splits will be finalized months apart.
Alphabet announced plans for its 20-for-1 stock split in early February in conjunction with its fourth-quarter earnings report. Stockholders of record at the close of business on July 1, 2022, will each receive an additional 19 shares of stock for each share they own on or about July 15, and shares will begin trading at their split-adjusted price on July 18.
Amazon revealed plans for its 20-for-1 stock split in a regulatory filing earlier this week. Shareholders of record at the close of business on May 27, 2022, will receive an additional 19 shares of stock for each share they own on or about June 3, and shares will begin trading on a split-adjusted basis on June 6.
Both moves require shareholder approval in order for the stock splits to take place. Amazon plans to put the matter to a stockholder vote at the company’s 2022 annual shareholder meeting on May 25, while Alphabet’s vote will take place at its shareholder meeting on June 1.
Finally, investors won’t need to take any additional action to receive the additional shares of stock. That will be handled behind the scenes by brokerages.
Stock splits don’t make Alphabet and Amazon better investments
Both Alphabet and Amazon have seen their respective share prices climb significantly over the past three years, with the stocks gaining 129% and 82%, respectively (as of this writing). To give that context, the broader S&P 500 has gained roughly 55% during the same period.
Additionally, both stocks have surged since announcing their respective stock splits, which might cause novice investors to conclude that stock splits are, in and of themselves, a reason to buy shares. But that simply isn’t the case. The total value of the company doesn’t change whether there’s a stock split or not. Put another way, the value of shares held by an investor doesn’t change in relation to a share split; they merely own more shares at the lower, split-adjusted price.
Some would argue that a stock split boosts market enthusiasm for the shares, playing on investor psychology. While that’s certainly true in the wake of the announcement, over years and decades, it’s ultimately business performance and financial results that matter.
There’s also a case to be made that by making the stock price more palatable to a larger base of retail investors, there will be greater demand for the new, lower-priced shares. While that’s certainly true, it’s ultimately the quality of the company’s revenue stream and the underlying value of its profits that drive the stock price over the long term — whether there’s a stock split or not.
Consequently, if shares climb to an unreasonable level as the result of a stock split, some value-minded investors may sell their shares in a wave of profit-taking, reducing the overall demand.
Given the uncertainty playing out on the world stage and underlying macro-economic issues, there’s simply no way to know for sure how Amazon and Alphabet shares will trade in the weeks and months leading up to their respective stock splits.
Investors should focus instead on the underlying strong fundamentals of these businesses, their market-leading positions, and the strong consumer demand that will fuel Alphabet and Amazon’s share prices for years and perhaps decades to come.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena owns Amazon. The Motley Fool owns and recommends Alphabet (A shares) and Amazon. The Motley Fool recommends Alphabet (C shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
