Amazon Stock Split: What You Need To Know (2024)

In March, Amazon.com Inc. (AMZN) announced its first stock split since 1999. The 20-1 stock split goes into effect today, June 6. Shares were worth $2,785 at the time of the announcement—that’s a gain of more than 4,500% since the prior split.

Investors love stock splits, perhaps because they offer the illusion of getting something for nothing. Just keep in mind that cutting one pizza pie into 20 slices doesn’t create more pizza.

Amazon Announces 20-1 Stock Split

Amazon approved a 20-1 stock split and a $10 billion stock buybackon March 9. The board said the split would “give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest.”

When a company splits its stock, that means it divides each existing share into multiple new shares. In a 20-1 stock split, every share of the company’s stock will be split into 20 new shares, each of which would be worth one twentieth of the original share value.

A stock split does not impact a company’s market capitalization—the combined value of all its shares—and it doesn’t change the value of each investor’s stake in the company. It merely increases the number of shares outstanding and decreases the cost of each share.

Why Is Amazon Splitting its Shares?

A stock split is one sign that a company is thriving—and there’s no question that Amazon runs a very healthy business. In its 2021 annual report, released in February, Amazon reported revenue of $470 billion, up nearly 22% year-over-year. Net profit was $33.4 billion, a gain of more than 56% over the prior year.

While the business is undoubtedly thriving, Amazon’s stock price had fallen around 25% in 2022 so far. AMZN’s shares have been dragged lower by a stock market that has seen a big pullback since the start of the year.

In addition, the company reported its first quarterly loss in seven years in the first quarter of 2022, thanks to the continuing supply chain crisis, rising inflation and a bad investment in electric vehicle startup Rivian—shares of RIVN are down 65% so far this year.

Nevertheless, one share of AMZN still required investors to shell out $2,785 at the time of the stock split announcement. That’s a tall order for new investors who want a piece of the action. Sure, some brokerages offer fractional shares of Amazon, but the fact remains that a high share price can be a turn-off for some.

Amazon’s Stock Split Could Help It Get into the Dow

There’s another reason Amazon may be choosing to split its stock: The possibility of being included as one of the 30 stocks that make up the Dow Jones Industrial Average (DJIA).

Unlike other leading stock market indexes, the DJIA is a price-weighted index. That means the 30 component companies in the Dow are weighted in the index according to their stock price—rather than their market cap, as is the case with component companies.

The DJIA includes some of the biggest companies by market cap in the U.S. stock market, but they also prefer to maintain a relatively even balance when it comes to share price. They don’t want high-priced stocks to have an outsized impact on the performance of the index.

“The Index Committee monitors whether the highest-priced stock in the index has a price more than 10 times that of the lowest,” wrote S&P Dow Jones Indices, which manages the index, in its most recent methodology statement for the DJIA.

Amazon’s stock split makes it more attractive as a component in the price-weighted Dow. It’s already among the largest companies on earth by market capitalization. At a split-adjusted price of $124 a share, Amazon would be right in the middle of the pack of share prices of current DJIA components.