Amazon Stock Split EXPLAINED - YouTube

Amazon recently announced that  it was splitting its stock 20-for  

1. This is the first time in more than 20 years  that the tech giant has chosen to split its  

shares the market seemed pretty excited by  this news and amazon stock jumped about 5%  

after the announcement was made what does  all this mean for investors in amazon like me  

here's everything you need to know about  amazon stock split my name is Brian Feroldi

thanks to Quartr for sponsoring today's video  let's start with the news so on march 9th 2022  

amazon's board of directors approved a 20 for  one stock split now the stock split and the  

authorization to increase the number of shares  still needs shareholder approval and that vote  

will take place on may 25th 2022. if everything  goes through as planned what will happen  

is that on may 27th every shareholder of amazon  will all of a sudden receive 19 additional shares  

for each one they hold so if you own one share of  amazon before the split you will suddenly wake up  

with 20 shares of amazon after the split now this  news really excited the markets and shares jumped  

about five percent when the announcement was made  and with shares currently trading about $2,900 per  

share does that mean that investors are going  to be in for a sudden windfall, unfortunately,  

that's not how stock splits work see with amazon  splitting its stock 20 for one the total number of  

shares that are outstanding is going to go up  by a factor of 20. to compensate for that the  

share price also has to fall by a factor of 20.  so with shares currently trading for about $2,900  

each that means that those 20 shares you're going  to get are going to be worth about $145 each which  

is one twentieth the price so notice that if you  had twenty nine hundred dollars invested in amazon  

before the split you'll have twenty nine hundred  dollars invested in amazon after the split another  

common misconception about stock splits is that  some investors believe that amazon stock will  

have an easier time doubling or tripling with the  much lower share price so some people believe that  

a 145 dollar stock has a much higher chance of  becoming a 290 dollar stock than a 2900 stock has  

a chance of becoming a fifty eight hundred dollar  stock well unfortunately that's not how it works  

either rather than focusing on the share price i  want you to focus on another important investing  

metric and that is called market capitalization so  what does market capitalization mean this is just  

the total dollar value of a company's equity  it's essentially a measure of what a company  

is currently worth now the formula for market  capitalization is extremely simple it's just the  

last share price times the total number of shares  that are outstanding so let's do that calculation  

for amazon amazon is currently trading for about  twenty nine hundred dollars per share but how  

do we find out how many shares are outstanding  well there's lots of ways that you can do this  

one of the ways that i like is to go to the  most recent earnings report and look at the  

income statement at the very bottom of the income  statement is listed the total number of diluted  

shares that are outstanding as of the end of the  year in amazon's case there are 516 million shares  

outstanding currently so if we do that math 2900  share price times 516 million shares outstanding  

that gives us a market capitalization of about 1.5  trillion dollars that is the current total equity  

value of amazon's common stock and this number is  easy to find up without doing that math if you go  

to sites like yahoo or google it's always reported  as one of the company's key statistics so if we as  

shareholders are hoping that amazon stock is  going to double doesn't really matter if the  

stock is trading at $145 per share or $2,900 per  share what we really think is going to happen is  

the company's market cap is going to go from $1.5  trillion to $3 trillion dollars that's what needs  

to happen for amazon stock to double from here all  right i just threw a lot of information at you so  

let's quickly recap before the stock split amazon  was worth $1.5 trillion dollars and that was made  

up of $2,900 share price times 516 million shares  outstanding after the stock split goes through  

amazon is still worth $1.5 trillion dollars but  there will be 10.32 billion shares outstanding  

and each of them will be worth about $145 so  the before and after pictures on the market  

capitalization are unchanged it's just the dollar  price of one share that is really changing well  

you might now be thinking well our stock splits  non-events i actually think there's five good  

reasons that investors should be happy about this  stock split news which i'll get to next before i  

do so i wanted to give a shout out to this video's  sponsor which is Quartr quarter's mission is to  

make every interaction between companies and their  investors meaningful quarter does so by providing  

frictionless access to conference calls investor  presentations transcripts and earnings reports  

from markets all around the world straight to  your pocket for no cost if you're interested in  

giving quarter a try for free simply visit the  app store of your choice and search for Quartr  

that's q-u-a-r-t-r all right so if indeed  stock splits don't really matter that much  

why do i think they're a good idea well let's turn  to reason one after a stock split Amazon stock  

become much more accessible to small individual  investors a lot of investors don't like the idea  

of buying into a stock that's trading at twenty  nine hundred dollars maybe they don't have $2,900  

to invest in one company or maybe their broker  doesn't allow them to buy fractional shares  

for that reason there are some investors out there  that want to invest in amazon but because amazon  

stock is trading at such a high dollar price  they don't want to do that reason number two  

to split the stock has to do with the company's  own employees many of amazon's employees are  

paid with stock-based compensation in some cases  employees only own a handful of shares themselves  

and if they want to sell their position they often  have to unload a sizable portion of their amazon  

position to do so by lowering the share price by  a factor of 20 amazon's employees might have a  

much easier time selling a portion of their stock  instead of all of their stock to fund a purchase  

reason number three has to do with the dow jones  industrial average the dow jones industrial  

average is one of the most famous stock market  indices in the world but the dow uses a company's  

share price to determine the weighting of the  indices if you look at the current composition  

of the dow 30 all of the companies that are in the  dow trade between $47 and $500 dollars per share  

if amazon was to be included in its current share  price it would have about six times the weighting  

of the current largest style component which  is united health group and nearly 60 times the  

weighting of the smallest dial component which  is intel corporation for that reason there's  

no way that the dow committee would currently  consider adding amazon to the dow jones index in  

its current incarnation reason number four has  to do with options holders we've never talked  

about options on this channel but if you want  to buy or sell options all options transactions  

take places in lots of 100 shares now 100 shares  times a $2,900 stock price is $290,000 for each  

option contract that's a lot of money even if  you're managing quite a bit of money on your own  

by splitting the stock 20 for one that reduces  each option contract from $290,0000 all the way  

down to $14,500 now that's still a lot of money  in absolute terms but if you're interested in  

buying or selling puts or calls on amazon it's  much easier to do so with a lower share price  

and then the final reason that it's a good thing  once companies split their stock is there's  

often a lot of short-term excitement we've seen  this in recent years when other companies have  

announced to split their stocks such as tesla when  it announced a five-for-one stock split in 2020  

its share price got a boost when apple announced  a four for one stock split in 2020 its share  

price got a boost when google announced a  20 for one stock split earlier this year  

its share price got a boost now if you watch this  channel for any period of time you know that we  

focus on the long term and not the short term but  given the positives that i just mentioned i don't  

really see a reason for a company not to split  their stock so when i think about companies like  

shopify or equinix or mercado libre or autozone  or booking holding given the five upsides i just  

mentioned i think the positives of splitting  your stock far outweigh any potential negatives  

so yes while it's true that stock splits don't  really create any actual value for shareholders  

the positives of doing so really outweigh the  negatives so i don't see any reason for companies  

not to split their stock now in that same stock  split announcement amazon also announced that it  

was doing a stock buyback program if you'd like  me to make an explainer video on what a stock  

buyback is let me know in the comment section  below hope this video was helpful brian out