3 Things to Know About Amazon Ahead of Its Stock Split
More and more investors may be thinking about Amazon (NASDAQ: AMZN) these days. Not because of anything the company has actually done differently in recent times. But instead, because of the company's stock-split plans. Amazon announced it will launch a 20-for-1 split in June. This will bring down the value of each individual share from more than $2,700 to about $140.
You may be thinking of buying the stock after this news. After all, the operation will make it easy to buy one full share without spending a fortune. But, should you buy the stock before or after the split? Here are three things to consider first.
Image source: Getty Images.
1. The stock split won't equal long-term gains.
Amazon's upcoming stock split is great news for the reason I mention above: It makes it easier for a broader range of investors to buy one full share of the stock. Prior to the split, if you want to make a small investment in Amazon, you have to go the route of fractional shares.
The stock split could lift the shares a bit in the days following the operation. That's as new investors decide to buy shares or current investors add to holdings.
But the stock split itself won't push the shares higher over time. That's because the split doesn't change anything about the company or its financial picture. The market value remains the same. And, as a shareholder, the value of your investment also will remain unchanged. So, consider this upcoming operation as a technical detail only.
2. Cloud computing strength is here to stay.
Amazon Web Services (AWS), the company's cloud computing business, represents more than 70% of Amazon's operating income. And this probably won't change significantly any time soon. AWS has steadily held between 32% and 33% of the cloud computing market over the past five years, according to Synergy Research Group. It's in the leading position. And its closest competitor -- Microsoft -- isn't too close behind. Microsoft's Azure holds 21% of the market.
So, we see that AWS has proved it can hold its position over time. And it keeps bringing on major clients and projects. For example, last year, Meta chose AWS as its long-term cloud partner to advance artificial intelligence research. And healthcare companies Pfizer and Gilead Sciences both chose AWS to improve their drug development processes.
3. Retail reach may be getting even bigger.
Amazon already is an e-commerce leader -- and a lot has to do with its subscription service, Prime. The program had more than 200 million members worldwide as of 2020. And in the fourth quarter of last year, the company said it added "millions" of new members. Amazon represents about 40% of e-commerce sales in the U.S., according to Insider Intelligence.
But Amazon's position in the market soon may get even bigger. That's because it's launching a new program called "Buy with Prime." The idea is shoppers will be able to buy items on certain websites outside of Amazon -- but get the advantages of Prime such as free shipping and returns. Merchants pay processing fees as well as fulfillment and storage fees. There are advantages here for Amazon. First, it's able to make more use of -- and further monetize -- its greatly expanded fulfillment network. Amazon nearly doubled the network since the start of the pandemic. Amazon's move also offers Prime members this additional advantage of getting Prime benefits even when shopping elsewhere. This could attract new members and ensure current members stick around. And, finally, this move makes Amazon an even bigger player in the e-commerce market.
What does this mean for investors?
Amazon's stock split has drawn a lot of attention. But it actually isn't the biggest or most important news for the company or investors. It's unlikely to offer the stock a major lift.
But the two other points I mention here are significant -- and could push the shares higher over time. So, this means you don't have to rush out and buy Amazon shares before the split or plan to buy them at a particular time right after the operation. It doesn't matter if you invest in this retail and technology giant before or after the split. Either time is fine to get in on this long-term winner.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino owns Amazon. The Motley Fool owns and recommends Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends Gilead Sciences. The Motley Fool has a disclosure policy.
