While its future might have been speculative when it launched nearly three decades ago, it seems clear today that the e-commerce giant Amazon (AMZN) will only continue to dominate in revenues. Its expanded services and innovation strategies, including its development of Amazon Web Services (AWS), its entrée into the grocery business with the purchase of Whole Foods, and its growing in-house shipping and logistics division that rivals leaders FedEx and UPS, have led to ever-increasing stock prices.

For those who avidly watch the market, the skyward price for Amazon stock has led some to question when a stock split may occur. While I covered this question in previous posts, I think it deserves reconsideration because, let’s face it: we can all admit it has been a major year for the stock market.

Amazon Stock Continues to Reach New Heights

Despite the roller coaster that the pandemic had wrought on the stock market, Amazon’s stock prices continue to hold firm. As of July 2020, Amazon stock reached over $3,000 per share. This price puts AMZN in an echelon of stocks that only the elite investor can attain.

This quadruple-digit price is nothing new for Amazon stock – it’s currently below its peak price of $3,401.80 per share that it achieved a few months ago on August 28th, 2020. What it calls into question, though, is just how soon these record-setting prices will lead to a stock split, particularly given the fact that these prices – when set against other blue-chip stocks – pale in comparison and thus make investing in Amazon incredibly prohibitive.

Amazon’s stock price as of Dec 16, 2020 - courtesy of Google

A Stock Split Explained

In general terms, a stock split occurs when a company issues more shares to those who hold them. The advantage of such splits is that shareholders can double, or even triple, their holdings of stocks in a company. The downside is that, at the outset, the value of each stock is diminished in proportional relation to the split.

Let’s look at a hypothetical example from the last time Amazon stock split. This last event was in 1999 and resulted in a three-for-one split, which meant that for every one stock a shareholder owned he or she would subsequently have three. Let’s say that you owned 100 shares at the time, each worth $100 (a number, coincidentally, that is over the 1999 value of Amazon stock, which fell closer to $70). This means that you own $10,000 worth of Amazon stock. When Amazon initiated a three-for-one stock split, you would have suddenly achieved 300 shares, but you still would have an investment of $10,000. With this split, the value of each share would have dropped from $100 to $33.33.

The optimistic investor can see this split as an opportunity for growth, particularly if he or she is confident that the price of the company’s stock will continue to rise. The real benefit, however, goes to the company, as many such splits are a way in which companies can bring their individual share price into a more affordable range and thus encourage more investors to become shareholders. For instance, if you have $1,000 to invest, at the original price you could only afford 10 shares of Amazon stock. With the three-for-one split, however, you could buy 30 shares with one dollar remaining. As this simple example illustrates, these splits can make space for new investors to consume more substantial portions of corporate stock. Without a split, though, such expansion of shareholders is difficult. To return briefly to our earlier example, with $1,000 to invest, we wouldn’t even be able to afford a single stock. In such a scenario, a stock split would be our only chance to buy some Amazon shares.

Amazon Stock Split History

So, when was the last time Amazon’s stock split? In the late 1990’s when the Internet boom was taking shape, Amazon did 3 stock splits over a 15 month period in order to try keep their soaring stock price down. The first split took place in 1998 as their share price reached around $100. Amazon then offered a 2 for 1 split. In January 1999, Amazon did another split as their price moved to $150, this time round they did a 3 for 1 split to try bring the price into the $50 region. It was not long thereafter that once again their price moved into the $100 range and so they did the 3rd split in September 1999 at a  rate of 2 for 1. When the tech bubble burst in the early 2000’s, Amazon stock plunged to $5, but as history has proven, nothing can hold Amazon back.

Amazon Stock Split History Table

Split Date Split Ratio 100 Shares from '98 became
2 June 1998 2:1 200
5 January 1999 3:1 600
2 September 1999 2:1 1,200

Lower Price = Psychological Satisfaction

When it comes to the cost of an individual stock share, the number is, as we say, just a number. We as humans tend to not take these numbers rationally, though, and instead often succumb to the psychological allure of seemingly “reduced” prices. In his 20505 TEDTalk, “Why we make bad decisions” Harvard psychologist Dan Gilbert unpacks how easily we can be duped by seeming discounts that offer the consumer very little but nevertheless seem attractive because they bring a “savings.”

This is the very psychology, though, that that companies like Amazon have relied upon for years and that underpins the very essence of a stock split: it hinges on the idea that if we see a share at a suddenly lower price – even if that means a coinciding lower value – our minds tend to set off the “Bargain!” alarm before we think critically about what we are actually getting.

Another psychological implication of a stock split is that the market is in an overall healthy, or bullish, zone. The logic here is that a stock split suggests that a company sees additional increases in the stock price in the near future, thereby alluding to the wellbeing or growth of the company. In other words: what company would be crazy enough to initiate a stock split if it wasn’t continuing to perform at its peak?

A Look at Liquidity

Beyond the desire to woo more investors, stock splits are also valuable for the optics of a company because they boost the company’s liquidity or movement of the shares. When a company’s stock shares are not traded frequently or reveals a substantial difference in price between its bid and ask rates, it might be considered illiquid and might present a red flag.

To be sure, illiquidity is not something that Amazon needs to fear: with an average daily volume of more than 3 million shares and their free float of 498 million outstanding shares, Amazon is adequately liquid for the foreseeable future. That being said, that doesn’t discount the possibility of a split soon, as over the long term, as we’ve seen, such splits can be an asset.

Image & Performance Summary: Plot of Amazon’s Average Daily Volume, courtesy of Finbox.

Performance Summary

  • Amazon.com's latest twelve months average daily volume (3m) is $3.881 million.
  • Amazon.com's average daily volume (3m) for fiscal years ending December 2015 to 2019 averaged $4.194 million.
  • Amazon.com's operated at median average daily volume (3m) of $3.881 million from fiscal years ending December 2015 to 2019.
  • Looking back at the last five years, Amazon.com's average daily volume (3m) peaked in December 2018 at $5.65 million.
  • Amazon.com's average daily volume (3m) hit its five-year low in December 2017 of $3.518 million.
  • Amazon.com's average daily volume (3m) decreased in 2015 (3.799 million, -7.1%), 2017 (3.518 million, -14.7%) and 2019 (3.881 million, -31.3%) and increased in 2016 (4.122 million, +8.5%) and 2018 (5.65 million, +60.6%).

Public and Press Interest

At the same time that Amazon wants to keep up the right optics within the market, they also are assuredly hoping to side-step the perils possible by not initiating a stock split. Take, as one example, the case of Berkshire Hathaway (BRK.A), Warren Buffet’s prominent holding company. A Class A share in the company costs about $276,000. At prices that high, not that many shares move on a daily basis - this low volume pales in comparison to Amazon’s more than 3 million daily-traded shares - and not that many people are really interested in that movement.

This low volume of circulation could result in an impression of illiquidity, but it also has the effect of diminishing public and press-related interest in the stock itself. More folks, though, are interested in the movement of shares for companies like Amazon, though, because of the volume of the trades, which is in turn impacted by the price of each share. This attention is just what Amazon seeks for its brand, not only to keep its stock sales high but to also use the pull of the media to build buzz for its products and services.

Boosting a Building Business

Amazon is incredibly cognizant of the positive press impact that such a split could bring to the company. This factor is important given all of Amazon’s efforts to consistently seek out new avenues for innovation and to boost the buzz surrounding their integrated offerings. That push for integration can be seen particularly in Amazon’s development of three prongs of their business over the past two decades, each of which is highlighted below:

Amazon Web Services

Since the introduction of Amazon Web Services (AWS) in 2006, it has become an integral IT infrastructure outlet for companies and organizations from around the world – but primarily the United States – to manage and store their data. Amazon reports that more than one million entities use AWS services, and among these companies are some of the biggest names in contemporary business, from Adobe and Airbnb to Yelp and Zillow. This rapid development and expansion of AWS’ cloud computing reach has only helped to expand Amazon’s presence across industries and its profit margins. In 2018, for instance, AWS delivered much of Amazon’s profits and continues to break records as competitors like Microsoft and Google attempt to keep up.

Whole Foods Acquisition

When it was announced in June of 2017 that Amazon was acquiring the Whole Foods chain of grocery stores for a cool $13.4 billion, many saw it as the company’s attempt to bat away the rising competition of rival retail giants like Walmart. At the same time, it came as a parachute of sorts for Whole Foods, whose emphasis on upscale items had caused the company to miss opportunities to keep up with their own competition.

Once the deal was complete, Amazon took swift action to build their presence in the store locations and today guides shoppers through every component of the in-store experience. From Amazon merchandise in pop-up stores in some locations to special codes and deals for Amazon Prime customers, Amazon has in its transformation of Whole Food demonstrated once again how it can continue to find profit streams in whatever arena it pursues. Amazon has also integrated the Whole Foods shopping experience into their user interface, offering an application designed for Prime members to shop online for groceries and enjoy rapid home delivery. Even before these boons for Prime members, it is as if the mere acquisition of Whole Foods reminded Amazon’s investors of this uncanny ability, as news of the purchase drove stock prices up 1% immediately.

Amazon Shipping

Even before acquiring Whole Foods, Amazon was already considering ways in which it could innovate in the realm of shipping and delivery. Beginning in 2016, the company implemented preliminary “last-mile shipment” logistics and grew it exponentially ever since. So rapid – and somewhat under the radar – was this development that by the summer of 2019 FedEx announced that they would not renew their contract with the online retail behemoth because of the extent to which Amazon had moved into the shipping and delivery marketplace. By 2018, Amazon boasted 200 aircraft as part of their delivery fleet as well, all in an effort to stand by their 1- and 2-day shipping guarantees.

Amazon Prime Air

In short, Amazon had found yet another way to disrupt the market and to optimize their own services to attract even more business. This integrated experience, from customer click to doorstep delivery has made Amazon virtually a household name. Furthermore, in our current pandemic moment, when social distancing and home deliveries are of paramount importance, Amazon is sure to find even more ways to excel.

These new avenues of Amazon’s development all post-date the company’s last stock split, which showcases how rapidly the company continues to work to disrupt the market and pull in profits. The real question is: with all that profit, how high can Amazon stock go before a split occurs?

A Succession of Splits

Compared to some of its colossal corporate colleagues, like Apple, that are more favorable of stock splits, historically Amazon tends to be more cautious before such splits. As mentioned above, the last time Amazon split its stock was the three-for-one split in 1999. This means that, to date, it has been more than twenty years since they added additional shares to the marketplace. Furthermore, that last split in 1999 was one of three splits within a 15-month period. In 1998 and earlier in 1999, respectively, Amazon executed two two-for-one stock splits. This incredible momentum was slowed slightly in the immediate years that followed – the tech bubble burst in the early twenty-first century sent many stocks reeling – but of course, Amazon has only grown exponentially since. From its price of $5 per share at its lowest in the early 2000s to its nearly-$2000 per share price today, it seems that Amazon’s growth is boundless.

Diving into the Dow Jones

Why else might Amazon want to slide into another stock split? One big reason is that doing so might give the company a path to being listed on the Dow Jones Industrial Average. Being included on this well-respected index can be an asset for a company like Amazon because it is a price-weighted benchmark that is universally trusted across industries and is the most oft-quoted financial measure of the modern market.

Amazon is already included in the Nasdaq 100 and the S&P 500, but it has yet to make it into the Dow Jones listing because of its pricing. Since the Dow is price-weighted, it is heavily influenced by the actual stock price of each member company. In other words, the less expensive a stock might be the less influence it will have on the benchmark; the more expensive the stock, though, the more impact it will have. The relatively high price for Amazon’s stock would give the company undue influence within the index. For example, Amazon’s current per-share price surpasses the prices for 15 of the Dow’s lowest-priced players. This would give Amazon an unprecedented - and undesired - level of influence.

Of course, never say never: there is a scenario in the future that might see Amazon make it into the Dow, however, it would require a substantial split of its stock to adequately lower price and consequently not disrupt the time-honored benchmark.

Conclusion: Wait and See for Any Stock Splits

Stock splits are nothing new for Amazon, and its continued exponential growth seems to suggest that a split must lie somewhere in the future. With Amazon’s ventures into its own shipping logistics and its incredible performance within its AWS division, continued growth is all but guaranteed, and it wouldn’t be in anyone’s interest to allow individual share prices to continue to accelerate to unprecedented prices.

That being said, the world is currently filled with enough uncertainty that it seems such a split might not be immediate. The global pandemic that has shuttered industry and has caused a sharp contraction in the market makes now a subpar time to make such bold moves, particularly as it might be some time before stocks achieve their benchmark high prices they had achieved before March 2020. In short, time will tell in what direction Amazon owner Jeff Bezos will lead his company’s stocks, but a split will probably be savvy sooner rather than later.