What is a stock split? Term explored amid Amazon stocks undergoing split

When a company declares a stock split, the number of shares issued increases while the market cap remains unchanged.

This week, Amazon became the latest mega-cap tech giant to announce a split, with shares rising on the news much like Google-parent Alphabet did after its split last month. Experts predict that this could become a growing trend, with several other high-value companies potentially following suit.

A split occurs when a firm increases the number of shares it issues in order to increase the liquidity of its stock. Because a split has no fundamental effect on the company's value, the total dollar value of all outstanding shares remains constant, even when the number of shares outstanding increases by a specific multiple.

2-for-1 and 3-for-1 split ratios are the most prevalent split ratios. This means that for every share owned prior to the split, stockholders will receive two or three shares following the split.

A split is a business operation in which a corporation issues extra shares to shareholders, raising the total number of shares by a set ratio based on the shares they previously held.

Companies frequently choose to split their stock in order to lower the market price to a more reasonable level for most investors and to boost the liquidity of trading in their shares.

Most investors would rather buy 100 shares of a $10 stock than one share of a $1,000 stock, for example. As a result, many public firms have declared a stock split to cut their share price after it has increased significantly.

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Stock split explained after the stock of Alphabet and Amazon get boosted

The split-adjusted price of Amazon stock has begun trading. The post-split share price of Amazon is around $125. The company announced a 20-for-1 stock split, which means that for every single Amazon share held, shareholders will now have 20 shares in their account.

In other words, every Amazon shareholder who owns one share on May 27 will have 19 more shares credited to their account. On Monday, June 6, Amazon stock will begin trading at a split-adjusted price.

Amazon's stock price closed at $2,447.00 on Friday, down nearly 2.52% from the previous day's closing price.

Kunal Sawhney, CEO of Kalkine Group, said

“As Amazon (AMZN) goes for its 20-for-1 stock split on June 6 after shareholders’ recent approval, its stock will trade with the new split-adjusted price from Monday. Investors who held the company’s shares on or before May 27 would be eligible for the stock split. New buyers will source the shares from sellers who owned the stocks before May 27. Hence, the eligibility would pass on with the shares.”

Amazon's stock is denoted by the AMZN symbol on the Nasdaq stock exchange. Amazon also has a history of stock splitting. The company went public in 1997 for $18.00.

According to Kunal Sawhney, CEO of Kalkine Group, the split may not result in a significant change in the company's business or valuation. It simply decreases the unit price of a share. A single share becomes more affordable, and this will likely attract new investors.