In June 2022, Amazon (AMZN) rolled out a stock split of 20:1, which is purely a technical move and does not add any value to the company. However, stock splits usually result in a spike in the share prices, as we found in the case of Tesla, Apple, and others.
However, something different happened in the case of the Amazon stock split. If you look at the recent rally of Amazon, most of it could be attributed to the stock split. This has raised questions about whether it will take some time to witness the true effects of a stock split or not.
Why Amazon Stock Split Pushed Stock Higher?
A stock split is used to split (divide) the total outstanding shares by a factor that is predetermined. For example, it is just like exchanging your $20 currency note with 20 notes of $1 each.
So in that sense, it should reduce the value of the stock and thus make it more affordable for small and new investors. Based on that logic, the Amazon stock price must have dropped instead of staging a bullish rally!
The first reason which led to Amazon stock appreciation was that it just got more affordable. In total, the price of Amazon stock got cheaper (20 times) which allowed even retail investors to easily buy AMZN shares.
Another reason for higher stock prices was the demand for ETFs. As the AMZN stock became cheaper, it became possible for Amazon to become part of DJIA (Dow Jones Industrial Average). And a direct result of that would be the inclusion of Amazon in various famous ETFs.
Last but not least was the share buyback program of $10 billion, which increased the sentiment around Amazon as a company.
In our personal opinion, the affordability of Amazon shares leads to a massive demand from small retail investors. So, in the end, the stock split achieved something that shouldn't have happened in the first place!
However, there are still some people who believe that Amazon company should have chosen better timing for its stock split. Because if we look back, the first quarter results of Amazon were gloomy and not good.