What does it mean when a stock splits and why are Amazon and Google doing them?

What does it mean when a stock splits and why are Amazon and Google doing them?

On Friday, Amazon stock closed at $2,447 a share. On Monday the stock closed at almost $125 a share. On paper that shakes out to over a 5000% decline.

On Friday, Amazon stock closed at $2,447 a share. On Monday the stock closed at almost $125 a share. On paper that shakes out to over a 5000% decline.

But Amazon shareholders actually didn't lose a penny on Monday. In fact, if they bought shares of Amazon on Friday and sold it on Monday, they would have come out ahead – short-term capital gains tax aside – since the stock closed higher.

But Amazon shareholders actually didn't lose a penny on Monday. In fact, if they bought shares of Amazon on Friday and sold it on Monday, they would have come out ahead – short-term capital gains tax aside – since the stock closed higher.

That's because the company executed what's known as a stock split for the first time in 23 years. A stock split means a single share gets split into multiple shares. Typically companies do 2-for-1 or 3-for-1 stock splits where shareholders get an extra one or two shares equal to the previous trading price of one share.

What is a 20-for-1 stock split? A 20-for-1 split means that Amazon shareholders got 19 additional shares for every one they owned before Monday. Since Amazon shares closed at $2447 on Friday, before markets opened on Monday the price of shares after the split went to around $122, or $2447 divided by 20.

Google's parent company, Alphabet, is planning a 20-to-1 stock place that will take effect on July 15. Amazon's market value didn't change as a result of the split because share prices decreased at a proportional rate to the number of shares that were made available.

Amazon said the split makes the stock "more accessible for anyone who wants to invest in Amazon" and gives employees "more flexibility in how they manage their equity in Amazon."

Amazon said the split makes the stock "more accessible for anyone who wants to invest in Amazon" and gives employees "more flexibility in how they manage their equity in Amazon."

Do you lose money when a stock splits? Just like Amazon's market value doesn't change, shareholders don't lose any money because of a stock split.

Do you lose money when a stock splits? Just like Amazon's market value doesn't change, shareholders don't lose any money because of a stock split.

Is a stock split good? Generally speaking, stock splits are a good sign because they mean that a company has done so well over time that the price of a single share is too expensive for an average retail investor.