Amazon's Stock Split Has Taken Effect. Now What?

Amazon's Stock Split Has Taken Effect. Now What?

Amazon has a new share price, but investors' approach should stay the same.

Amazon has a new share price, but investors' approach should stay the same.

Back in March, e-commerce giant Amazon (AMZN 4.88%) announced that it would conduct a 20-for-1 stock split, and in May, shareholders voted to approve it. The split has now officially taken effect, but what has actually changed?

Back in March, e-commerce giant Amazon (AMZN 4.88%) announced that it would conduct a 20-for-1 stock split, and in May, shareholders voted to approve it. The split has now officially taken effect, but what has actually changed?

For every Amazon share that previously existed, 20 have taken its place. In turn, the price of each Amazon share has shrunk in proportion. One share of Amazon traded at $2,447 last Friday prior to the split, so dividing that number by 20 means the new share price is $122.35. But the market valuation of Amazon has remained the same, at $1.2 trillion, which makes the stock split entirely cosmetic.

Companies like Amazon do this because it makes their stock more accessible to smaller investors, and the hope is that their shareholder base broadens with some of these new buyers. But fundamentally, the case for buying shares in Amazon stays exactly the same, and here's what it is.

Companies like Amazon do this because it makes their stock more accessible to smaller investors, and the hope is that their shareholder base broadens with some of these new buyers. But fundamentally, the case for buying shares in Amazon stays exactly the same, and here's what it is.

Finding success in diverse businesse

Finding success in diverse businesse

Amazon was founded in 1994 by Jeff Bezos, who set out to leverage a concept called e-commerce to sell books online. His idea was met with plenty of skepticism, but by 1997 the company had over 1 million customers and opted to list publicly on the tech-focused Nasdaq. It is now the largest online seller in the world.

But Amazon owes its success to its aggressive expansion into new markets, which is a strategy it still maintains today. It has driven lightning-fast growth to the point where even the world's most famous investor, Warren Buffett, regrets not buying Amazon stock in the early days. Beyond e-commerce, the company now leads the entire cloud services industry through its Amazon Web Services (AWS) division, which has become the company's profit engine.

It also boasts an advertising business that trumped the world's largest video platform, Alphabet's YouTube, for revenue in 2021 with $31 billion. The company has a great opportunity to grow its ad segment thanks to its exciting assets like Amazon Music and the Amazon Prime streaming platform, which now holds the exclusive rights to the NFL's Thursday Night Football. That's not to disregard the contribution from Amazon's flagship website, which still generates over 2 billion hits per month.

But Amazon continues to look forward. In 2019, it purchased a stake in up-and-coming electric vehicle maker Rivian Automotive, grabbing a piece of what could be a multi-trillion-dollar industry in the coming decades. The Rivian investment has been a double-edged sword so far, though, dealing volatile results to Amazon's bottom line.

A financial powerhouse Amazon's operational success has certainly flowed through to its sales and its bottom line. The company has generated over $477 billion in total revenue in the last 12 months across all of its business units, and it was also soundly profitable for the period, with $41.43 in earnings per share.

Though with the stock split now in effect, investors should divide the earnings-per-share number by 20 to equal $2.07, bringing it in line with the higher number of shares outstanding.

Though with the stock split now in effect, investors should divide the earnings-per-share number by 20 to equal $2.07, bringing it in line with the higher number of shares outstanding.