- Amazon (+1.99%) 20-for-1 stock split under the worst possible market conditions, with retail appetite for equities appearing to have waned.
- Pandemic demand which fueled Amazon’s fortunes also appeared to have waned, with more in-store purchases and slowing consumer demand, as evidenced by Amazon’s excess warehousing capacity.
In life as in investment, timing, is everything.
While the stock splits of retail favorites Tesla and Apple saw a bumper bounty as mom-and-pop investors poured into shares of the two companies, that was against a backdrop of loose monetary conditions and an era of free money.
But now that that era of loose financial conditions appears to be coming to an end, e-commerce juggernaut Amazon has split its stock to an otherwise unreceptive market.
Think of stock splits like bite-sized Reese’s Pieces – they take a stock with a high absolute price and make it accessible to retail investors by splitting it into smaller chunks that investors with more modest means can chew on.
But the macro backdrop is unfavorable for companies, especially for the technology sector and Amazon’s split has meant that the stock is now trading at a discount to its original pre-split price.
On the flipside though, the lowered share price will make it easier for Amazon to enter the venerable Dow Jones Industrial Average.
To be sure, stock splits have no fundamental effect on share value – they’re the equivalent of swapping a $50 bill for five tens, but they were reason enough in the earlier part of this year to send share prices soaring as retail investors clamored for a piece of the action.
Nevertheless, stock splits can also be seen of as being opportunistic – no company splits their stocks expecting the price to fall even further.
And while Amazon has had an unsuccessful run with its recent split, much of this has to do with market conditions as opposed to the firm’s actual performance.
That having been said, Amazon has had to slow down some of its more ambitious expansion plans that were largely fueled by pandemic demand.
Warehousing and sales growth appear to be peaking and splitting stock into such an environment was always going to be a challenging proposition.
