The e-commerce giant's shares now trade at a much more modest-looking level.
Amazon (AMZN 2.82%) recently completed a much-talked-about stock split. Why was it such a big deal? Because Amazon's last such split was more than 20 years ago. As Amazon shares soared -- eventually reaching more than $3,000 in recent times -- investors speculated about a potential split. So when the company finally announced the move, it grabbed everyone's attention.
A stock split doesn't change anything fundamental. The company issues new shares to current holders, bringing down the price of each share accordingly -- and the market value of the company remains the same. Does that mean we can call the recent stock split a "nonevent" for Amazon? Not necessarily. Let's take a look at why Amazon's stock split really does matter.
A 20-for-1 split
Amazon announced a 20-for-1 split in mid-March. That means investors holding one Amazon share received 19 additional shares. At a pre-split price of about $2,000, the operation brought Amazon stock down to about $124.
Hopes were high that this move would spur investors to flock to the shares at a lower price point in the days following the split. But Amazon's post-split performance hasn't been too bright. The stock has slipped about about 20%.
It's not surprising that Amazon's stock hasn't taken off. Higher inflation weighed on the e-commerce giant's earnings in the first quarter. And management said that challenge may last longer than the company expected earlier in the year.
At the same time, higher inflation has plagued companies and consumers worldwide -- and interest rates are on the rise to tame it. Rising inflation results in rising costs for Amazon. And it hurts the wallets of consumers -- meaning they may buy fewer nonessential items on Amazon. As for interest rates, they weigh on consumers' wallets too. All this means that today's environment isn't the best for retailers.
Knowing that, some investors aren't rushing out to buy Amazon shares. They may want to wait and see how Amazon handles its costs in the next earnings period. Amazon said during its last report that it's focusing on costs that it can control, such as those linked to productivity and its fulfillment network.
The long-term impact
So that's Amazon's current situation. And as such, the stock split may not matter much. But over the long term, the stock split does matter. As mentioned, thanks to the split, Amazon shares now are trading at a lower price. That helps opens the door up potentially to a broader range of investors.
Prior to the split, investors who didn't have thousands of dollars to invest in just one stock -- or didn't want to invest that much -- could rely on fractional shares. But some brokerages don't offer that opportunity. And some investors prefer buying at least one full share or more. For all of these investors, it's a lot easier to buy shares of Amazon post-split. And this one element could help Amazon's shares eventually pick up speed.
It's also important to remember that Amazon's revenue and profit growth and its ability to manage today's tough times matter even more than the split. If a company splits the stock but keeps reporting terrible earnings quarter after quarter, the stock split won't offer a lift -- in the near term or the long term.
But when it comes to Amazon, I'm confident about long-term growth. The company's cloud computing business continues to increase sales and operating income in the double digits. And Amazon's Prime membership program should drive e-commerce growth once inflationary pressures ease. All of this means another wave of gains may be in Amazon's future.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.
What was the purpose of the Amazon stock split? ›
A stock split makes shares more accessible to more investors and boosts liquidity for the company. A stock split can be a good time to buy shares in a company since the shares will be more affordable. It can also be an indicator that the company's value will continue to grow.
What stocks are most likely to split in 2024? ›
Shares of Microsoft (NASDAQ: MSFT) and Intuit (NASDAQ: INTU) soared 541% and 437%, respectively, over the last seven years. That price appreciation qualifies both companies as stock-split candidates.
Was Amazon stock ever $3000? ›
Amazon split its shares last summer when its price tag reached over $3,000.
What 10 stocks did Motley Fool recommend? ›
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The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies. The Motley Fool recommends the following options: short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
What do experts say about Amazon stock? ›
Average Price Target
Based on 43 Wall Street analysts offering 12 month price targets for Amazon in the last 3 months. The average price target is $220.93 with a high forecast of $246.00 and a low forecast of $200.00. The average price target represents a 24.26% change from the last price of $177.79.
Has Amazon stock ever been $2000? ›
Amazon (AMZN) crossed $2,000 per share for the first time on Thursday morning as the e-commerce giant heads toward a $1 trillion market cap. The stock ended the day at $2,002.38.
Will Amazon reach $1000? ›
Future Outlook for Amazon Stock
It took seven and a half years for Amazon to reach $1,000 from $100 and it's very possible that it could hit $10,000 between 2023 and 2025. Amazon's potential to grow could continue over time.
How many times has Amazon stock split since 1997? ›
Amazon (NASDAQ: AMZN) has had four stock splits since its initial public offering in 1997, with its most recent one occurring in June 2022 in a 20-to-one split. The company has enjoyed immense success over the years by leading two crucial sectors: e-commerce and cloud computing.
Do stocks grow after split? ›
A stock split does not change the value of a stock because it does not change the fundamentals or growth prospects of the underlying company.
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The S&P 500 generated an impressive 26.29% total return in 2023, rebounding from an 18.11% setback in 2022. Heading into 2024, investors are optimistic the same macroeconomic tailwinds that fueled the stock market's 2023 rally will propel the S&P 500 to new all-time highs in 2024.
What if you invested $1 000 in Amazon 10 years ago? ›
Since shares were a little more expensive in March 2014 than they were one month later in April, a $1,000 investment exactly 10 years ago would have increased your money tenfold — to roughly $10,000. By comparison, the S&P 500 rose just 179.75% and gold gained 50.53% over the same period.
What if I bought $1000 shares of Amazon in 1997? ›
If I really wanted to impress you with big numbers, I'd point out that a $1,000 Amazon stake on the date of its initial public offering (IPO) in 1997 would have grown to $1.6 million by now.
What will 1 share of Amazon stock be worth in 10 years? ›
Analysts at Coin Price Forecast do offer a 2034 projection for Amazon stock, estimating a 10-year price increase of 276%, to $672 per share.
Why investors are so keen on Amazon? ›
These include the company's dominance of the e-commerce market and its ongoing expansion. Amazon Web Services is also a compelling business, regardless of whether its profit margins are improving. Nevertheless, these details do make the already solid bullish arguments even better.
Is Amazon a good stock to buy? ›
Amazon stock is reasonably valued
The company's shares are currently priced at 37.9 times its projected forward earnings. While this isn't a cheap valuation, it's reasonable for a stable company like Amazon that generates strong cash flows from operations.
Can I trust The Motley Fool? ›
Since 1993, The Motley Fool has been a trusted source of investment and financial advice to millions of members. Read their reviews showcasing our commitment to making the world smarter, happier, and richer. We are dedicated to customer feedback in order to provide the best services possible.
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Why Motley Fool Options? The Motley Fool preaches long-term investing, so recommending short-term strategies like options seems like a contradiction. But we have found that options, properly used, can complement a stock portfolio based on a long-term mindset.
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