Amazon stocks at discount?

On May 25, the Amazon stock will be available at $150 instead of $2,000, the price at which it is currently trading.

But how? Is this some kind of a discount offer? Is there a sale that you don’t know about?

Well, no! So Amazon is doing something that is called a STOCK SPLIT. Let’s understand what that really means.

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A STOCK SPLIT

Stock splits happen when a company decides to divide one share of its stock into more shares.

For example, a company might take one share of stock and split it into ten shares. The total combined value of the 10 new shares still equals the price of the previous 1 share. For instance, if Reliance were to do a ten-for-one stock split, and the original share price was ₹2,500 for one share, the new shares would each be priced at ₹250. Thus, an investor who previously held 5 original, ₹2,500 shares would then own 50 shares at the new price of ₹250.

REMEMBER:

In a stock split, investors who own shares still have the same amount of money invested, but the number of shares they own increases as a result.

WHY do companies do this?

Publicly traded companies, including multi-billion dollar blue-chip stocks, may do this. The firms grow in value due to acquisitions, new product launches, or new deals. At some point, the quoted market value of the stock becomes too expensive for investors to afford, which begins to influence the market liquidity as there are fewer and fewer people capable of buying a share that expensive.

So this is done to make the share price more investable, attractive and affordable for more investors to take a stake in the company.

Amazon Stock Split

Amazon investors will have the chance to vote on a stock split on May 25. Its board of directors approved a 20-for-1 stock split earlier this month.

On May 25, Amazon shareholders will have the chance to vote on the proposed 20-for-1 stock split. The split doesn’t have any direct effect on the stock’s value, or Amazon’s market capitalization, but rather divides each share of the company into 20 pieces. As such, using today’s price of $2,169.33 per share, each investor would hold 20 shares priced at $108.47.

The split may come as a benefit to the company by offering investors a cheaper price point to invest in the business. Rather than needing to shell out the full $2,000 for one share, traders can buy in at a smaller price point.

The stock split will occur on June 3 of this year, provided that the investors approve the same on May 25.

Sources: 

1. CNBC

2. InvestorPlace

3. Investopedia

4. Nasdaq

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