Amazon’s stock split has taken effect. Now what?

Amazon has a new share price, but investors’ approach should stay the same.

| More on:
woman receiving amazon parcel

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Back in March, e-commerce giant Amazon (NASDAQ: AMZN) announced that it would conduct a 20-for-1 stock split, and in May, shareholders voted to approve it. The split has now officially taken effect, but what has actually changed? 

For every Amazon share that previously existed, 20 have taken its place. In turn, the price of each Amazon share has shrunk in proportion. One share of Amazon traded at $2,447 last Friday prior to the split, so dividing that number by 20 means the new share price is $122.35. But the market valuation of Amazon has remained the same, at $1.2 trillion, which makes the stock split entirely cosmetic.

Companies like Amazon do this because it makes their stock more accessible to smaller investors, and the hope is that their shareholder base broadens with some of these new buyers. But fundamentally, the case for buying shares in Amazon stays exactly the same, and here's what it is.

Finding success in diverse businesses

Amazon was founded in 1994 by Jeff Bezos, who set out to leverage a concept called e-commerce to sell books online. His idea was met with plenty of skepticism, but by 1997 the company had over 1 million customers and opted to list publicly on the tech-focused Nasdaq. It is now the largest online seller in the world.

But Amazon owes its success to its aggressive expansion into new markets, which is a strategy it still maintains today. It has driven lightning-fast growth to the point where even the world's most famous investor, Warren Buffett, regrets not buying Amazon stock in the early days. Beyond e-commerce, the company now leads the entire cloud services industry through its Amazon Web Services (AWS) division, which has become the company's profit engine.

It also boasts an advertising business that trumped the world's largest video platform, Alphabet's YouTube, for revenue in 2021 with $31 billion. The company has a great opportunity to grow its ad segment thanks to its exciting assets like Amazon Music and the Amazon Prime streaming platform, which now holds the exclusive rights to the NFL's Thursday Night Football. That's not to disregard the contribution from Amazon's flagship website, which still generates over 2 billion hits per month.

But Amazon continues to look forward. In 2019, it purchased a stake in up-and-coming electric vehicle maker Rivian Automotive, grabbing a piece of what could be a multi-trillion-dollar industry in the coming decades. The Rivian investment has been a double-edged

sword so far, though, dealing volatile results to Amazon's bottom line. 

A financial powerhouse

Amazon's operational success has certainly flowed through to its sales and its bottom line. The company has generated over $477 billion in total revenue in the last 12 months across all of its business units, and it was also soundly profitable for the period, with $41.43 in earnings per share

Though with the stock split now in effect, investors should divide the earnings-per-share number by 20 to equal $2.07, bringing it in line with the higher number of shares outstanding. 

One segment, AWS, is punching above its weight as a contributor to Amazon's profits. The cloud platform offers its customers hundreds of online services from data storage to artificial intelligence, and despite accounting for just 14% of Amazon's total revenue in the past year, it's responsible for all of its operating income. In fact, without AWS, Amazon would've incurred an operating loss for the period.

Since AWS revenue jumped by 36.5% year over year in the recent first quarter of 2022, it's outgrowing the company's total revenue, which increased by just 7.3%. It means AWS continues to become a larger piece of Amazon, indicating the company could become more profitable overall as time goes on.

The stock split might be a net positive

If Amazon's shrunken share price results in a cohort of smaller investors flocking to buy the stock, it could help to lift the company's valuation. That would be especially helpful in the current market environment where the Nasdaq-100 index trades in a bear market, having declined 25% from its all-time high.

Amazon stock is faring even worse with a 35% loss over a similar period. Investors are currently reconsidering their growth expectations across most technology stocks because of rising interest rates and geopolitical tensions, which could hurt consumer spending. 

But regardless, any effect from the stock split will be short-term in nature. Investors who jump into Amazon should do so with the intention of holding for a five- to 10-year period. After all, investors who have held onto the stock since the company went public in 1997 have earned 1,630 times their money. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Anthony Di Pizio has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

a close up of a hand is outstretched amid graphic images of currency and cyprtocurrency symbols seemingly floating around a sphere of light representing perhaps the globe.
International Stock News

Big buying activity boosting Bitcoin, Cardano, and Polkadot today

These mega-cap cryptos are seeing the benefits of an incredible market-driven sentiment shift.

Read more »

Blue electric vehicle on a green rising arrow with a charger hanging out.
International Stock News

Why Tesla stock was up again today

Tesla just hit the 3-million-vehicle milestone, but there is plenty more to come.

Read more »

Man and woman looking over documents at computer
International Stock News

Warren Buffett says this type of investor benefits most when stock prices fall

Thinking like a buyer can make market downturns easier to manage.

Read more »

asx share price rebound represented by wooden blocks spelling rebound with coins on top
International Stock News

Just how safe is the stock market right now?

Stocks are rebounding, but should you really invest right now?

Read more »

market sell off
International Stock News

Stock market sell-off: How I’m continuing to make passive income

I love my dividend stocks, and since I'm still not retired, market downturns let me buy more of what I…

Read more »

Iron ore bear market Fortescue dissapointed man and shadow bear with a tumbling down stock market
International Stock News

Your investments vs. a bear market: How to come out on top

Bear markets can provide a great opportunity for you to emerge in a better space after they end.

Read more »

A trendy woman wearing sunglasses is making it rain, spraying cash on that bargain.
International Stock News

3 US stocks that could be worth $1 trillion by 2032

Buying these stocks today could be a rewarding move in 10 years.

Read more »

A man clenches his fists with glee having seen the Lake Resources share price go up on the computer screen in front of him.
International Stock News

3 reasons I’m buying this crypto hand over fist

Polygon continues to showcase why it might just be the blockchain of the future.

Read more »