Shares have tumbled since company announced 20-for-1 split
The declines mean prices will be even lower than anticipated
Stock splits were all the rage early this year as indexes hovered near record highs, with companies from Amazon.com Inc. to Alphabet Inc. announcing them to make their share prices more alluring to individual investors. A few months on, the market has taken care of the problem.
Amazon, whose 20-for-1 split takes effect Monday, is among companies whose stocks have tumbled since the moves were announced amid a broad market selloff that’s been especially painful for the technology sector. Shares of the e-commerce giant have fallen 12% since reporting the plan in March. Alphabet, which announced a similar proposal in February, is down 17% since then.
The selloff means the stocks will be trading at a discount to the sticker price originally envisioned by executives. That will make it easier for the behemoths to gain entry to the Dow Jones Industrial Average, whose weighting is based on share price, but it could have the effect of making them look less princely than their massive market values and history of big gains would imply.
“Stock splits are usually a sign of optimism,” said Mark Lehmann, chief executive officer of JMP Group. “Very few companies split their stock in anticipation of things going poorly. It’s an example of what’s reflected in the entire market.”
Splits, of course, have no fundamental effect on share value -- they’re the stock market equivalent of exchanging a $20 bill for two $10s. But in the buoyant market of early 2022, they were met with bidding wars by giddy traders.
For companies like Shopify Inc. that have fared even worse than Amazon and Alphabet amid an exodus from stocks with the highest valuations, the splits could make them look downright pedestrian. If the 10-for-1 exchange plann by the Canadian e-commerce company was done today, it would result in a US share price of about $35 following a 79% crash from a November high when the stock closed at a record $1,690.60. The median stock price in the S&P 500 Index, by contrast, is around $113, according to data compiled by Bloomberg. Shopify’s split is set to take effect on June 29.
Of course, the sour market sentiment could cause companies like Tesla Inc. to rethink their plans. The electric-car maker said in late March it would ask investors this year to approve the creation of additional shares for the purposes of another split. The stock was trading above $1,000 at the time. Since then, the shares have lost nearly a third of their value, closing Friday at $703.55, amid manufacturing problems in China and concerns about slowing growth.
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