With its ever-advancing technological innovations and its innovative branding across all of its products, Apple (AAPL) seems to be on course for unstoppable growth. Along with such growth, though, often comes rising stock prices and the eventual stock split. A move that comes with both costs and benefits, stock splits can help keep a booming business like Apple ahead of the curve.
Apple's Board of Directors has approved a four-for-one stock split, "to make the stock more accessible to a broader base of investors" says the company. Each Apple shareholder at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
The Benefits of A Stock Split
We’ve probably heard the term thrown about in numerous financial discussions or reports, but let’s begin with the basic question: what is a stock split, and why can it be beneficial? A stock split happens when a company decides to increase the number of shares in the company in proportion to those already held by shareholders. If, for example, a company embarks upon a straightforward stock split, this would mean that for every one share a holder owned pre-split, he or she would now have two.
Let’s take a look at one other example: that of Apple itself. In June of 2014, Apple initiated a 7-for-1 stock split. This meant that each share became seven shares over the course of one weekend. What is so great about more stock? Several things, the first of which being that they give a shareholder the immediate sensation that they hold an even larger percentage of the company. For example, let’s transport ourselves back to May of 2014, when Apple stock was closing in on $700 per share. Let’s say that at the time you had $10,000 to invest, so you were able to swing 14 shares at that high price. When the stock split occurred the following month, you would have suddenly become the owner of 98 shares in the company.
The downside here, of course, is that your “increased ownership” is, at the outset, purely an illusion. Sure, you own more shares, but so does everyone else who owned stock at the point of the split. In other words, you did not immediately make money; rather, your stocks were devalued to roughly $100 per share.
The focus, however, should not fall on the initial devaluation per share; rather, the emphasis should fall on the impending growth of the per-share price to come. This is where the psychology of the stock split becomes key.
Human Psychology Helps When Stocks Split
Let’s face it: it seems hardwired into our psyches to search out the best deals. This is why, as mentioned earlier, we get excited when, on paper, it looks like we garnered more shares in a stock split. That same psychology works to pull new investors in as well, which is one of the main reasons why companies consider splits in the first place.
First, there is the impression of good corporate health that news of a stock split relays to a potential new investor. In many regards, this leads to a bit of faulty logic: that is, that only a healthy company would consider splitting their stock. So, if Company A is announcing a stock split, they must see more growth in their future.
Second, there is the reduced price per share that might make a newly split stock even more attractive. Let’s bring back our Apple example to illustrate this point: if you are a potential buyer with only $1,000 to invest, you would have been able to afford only one of Apple’s nearly $700 shares. Following the stock split, when the price per share tumbled to around $100, you could have purchased 10 shares. This ability to buy more for the same initial investment makes such split stocks virtually irresistible to those who want to enter the market, and the companies themselves rely upon this seductive quality.
Apple Stock Split History and the Lure of Liquidity
Part of the reason a company wants more shares to be diversified across an increasingly broader field of holders is because more holders can result in more movement or sale of their shares. In turn, the more sales of shares, the more liquid a company appears to be, which makes it even more attractive. Apple has been lauded by analysts for its impressive liquidity and for its efficient turnover of shares, in part because Apple stock is perennially popular. That popularity only increased in 2012 when the company began to return dividends to its shareholders; today, Apple is renowned for its typically high dividend rates. This overall popularity contributes to consistent liquidity. But that doesn’t mean that a stock split awaits Apple on the financial horizon.
As of April 2020, Apple’s per-share price topped $276 per share, which reflects a 197% increase since Apple’s last stock split in 2014. This total still sets the current price at less than 40% of the 2014 share high, however, it seems important to note that Apple shares had reached more than $327 per share in February 2020 (before the global pandemic caused the markets to grind to a halt). This growth, combined with the fact that Apple stock has split not once but actually four times over the company’s history (undergoing 2-for-1 splits in 2005 – when the stock was valued at $90 – as well as in 2000 and 1987, respectively), doesn’t take a stock split off the table in the near future.
|Split Date||Split Ratio||100 Shares from '98 became|
|June 6, 1987||2:1||200|
|June 21, 2000||2:1||400|
|February 28, 2005||2:1||800|
|June 9, 2014||7:1||5,600|
|August 31, 2020||4:1||22,400|
Boosting a Building Business
Just a look at Apple’s performance in 2019 suggests that the company is on course for a stock split. Surpassing all of its competition on the Dow Jones Industrial average to become the index’s best performer last year, Apple stock grew nearly 86% in price over 2019 alone. Contributing to this success, of course, is Apple’s incredibly diversified range of products and services that consistently draw in new customers. These include the following divisions:
Whether you’ve never been able to trust a PC with your most important files or if you’ve stood in the never-ending queue for the latest version of the iPhone to be released, it is most likely that you’ve succumbed to the allure of Apple devices in some way. The sales of iPhones alone make up more than 50% of Apple’s total sales in 2019, while the iPad and the Mac generated an additional 8% and 10%, respectively. Tack on the nearly 18% of revenue garnered from Apple’s wearables, including the Apple Watch and the AirPods headphones, and you’ve got 86% of Apple’s revenue – roughly $55 billion – for the fiscal year of 2019 generated by devices alone.
When Apple Tim Cook noted the success of these devices and wearables at the end of the 2019 fiscal year, he also hailed the arrival of Apple TV+, which at the time was just slated to roll out in time for the 2019 holiday season. Low and behold, since that launch of the 2020 fiscal year, Apple services have seen record profits driven by products like Apple TV+. Indeed, the services division of Apple boasted a 17% increase in revenue over the year prior, to bank nearly $13 billion for the company. Apple is not letting up on the gas, either, as it has already slated a stellar line-up of shows and personalities, including Oprah Winfrey in one of her newest endeavors.
Beyond Apple TV Plus, some of the other major players of Apple’s services division include:
- iCloud: noted in 2013 as the leading provider of cloud-based storage in the United States, iCloud services still continue to hold a strong market share and a key source of revenue for Apple.
- App Stores: a virtual storefront that markets more than two million apps, the Apple App Store is one of the most profitable components of Apple’s services. Though the primacy of Apple-based apps via search has brought some antitrust scrutiny, the App Store nevertheless drew in more than $50 billion in 2019 app sales alone.
- Apple Pay: officially launched in late 2014 as a new way to pay but not really reaching global prominence until several years later, Apple Pay has now become an industry leader and now services approximately 5% of all virtual credit card transactions around the world. Roll in the recent roll-out of the Apple Card, a credit card developed in collaboration with Goldman Sachs and Mastercard. It makes for another brilliant collaboration that is sure to consume even more global credit action.
- AppleCare: one of the most versatile warranty services for all of your devices, AppleCare recently shifted to a monthly subscription model that is sure to drive even more clients to join.
- Apple Music: Apple celebrated the momentous landmark in June 2019 when Apple Music surpassed 60 million subscribers. They still have not surpassed Spotify as the all-around leader in music streaming satisfaction, but Apple Music continues to rank high for users of Apple products (which is a substantial percentage of the population).
- Apple Arcade: one of the newest additions to Apple’s line-up, Appel Arcade debuted in late 2019 as a subscription-based game service. This debut coincided with the launch of the Amazon Twitch app for Apple TV, however, it still faces stiff competition from both Twitch and Microsoft Mixer within a saturate live-streaming gamer realm.
- Apple Fitness+: Apple recently announced Fitness+, a subscription-based fitness experience built around the Apple Watch, which launched December 14. Apple Fitness+ brings studio-style workouts to iPhone, iPad, and Apple TV, incorporating workout metrics from Apple Watch for a personalized and immersive experience. Users can start a guided workout wherever and whenever is convenient for them. Fitness+ will is available as a subscription service for $9.99 per month or $79.99 per year.
- Apple One Premier Plan: The premier subscription plan gives customers access to Apple Music, Apple TV+, Apple Arcade, Apple Fitness+, Apple News+, and 2TB of iCloud storage for $29.95 per month. Apple is doing their best to ensure their subscribers are fully on board with everything they have to offer.
What this array of services reveals is the extent to which Apple is constantly innovating. Seemingly ahead of the competition in their quest to tap into new markets, Apple has seen the benefits of such a pioneering spirit with the incredible profits and growing share price of its stock.
Performance Summary (from Finbox)
- Apple's latest twelve months average daily volume (3m) is $28.133 million.
- Apple's average daily volume (3m) for fiscal years ending September 2015 to 2019 averaged $37.247 million.
- Apple's operated at median average daily volume (3m) of $32.164 million from fiscal years ending September 2015 to 2019.
- Looking back at the last five years, Apple's average daily volume (3m) peaked in September 2015 at $53.582 million.
- Apple's average daily volume (3m) hit its five-year low in September 2017 of $28.707 million.
- Apple's average daily volume (3m) decreased in 2015 (53.582 million, -23.9%), 2016 (41.799 million, -22.0%) and 2017 (28.707 million, -31.3%) and increased in 2018 (29.982 million, +4.4%) and 2019 (32.164 million, +7.3%).
Conclusion: To Split, or Not to Split?
So, what is the verdict? With the most recent stock split happening just a few months ago, in August 2020, it's highly unlikely we'll be seeing another split in the near future. Since Apple has aimed to get down to the $100 per share price mark, chances are the stock would need to double before another split seems anywhere possible. But that scenario certainly isn’t out of question, considering the stock has doubled just in the past 12 months.
- Trump’s Trade Deal Boon: with the installation of the “Phase One Trade Deal” with rival Chinese markets, companies like Apple, many of whose products are built in China, should see little disruption to the flow of their products.
- iPhone Inundation: Apple is currently on course to release five (yes, five) new iPhones in 2020. This means that Apple can target a wider consumer range and boost sales (and profits) accordingly. As a prime example, one of the models recently released a redesign of the SE, which offers many of the coveted iPhone features at a remarkably low price and thus makes investing in such technology more accessible for people around the globe.
- FAANG Favoritism: Apple is included among the top technology companies as a FAANG Stock (which stands for Facebook, Amazon, Apple, Netflix, and Alphabet). Among these leading tech companies, Apple stocks are actually a favorite for investors given its recent record price growth. Compared to its colleagues, Apple offers an unbeatable ratio of price to earnings, which can only accelerate Apple share sales.
It's important to rremember that stock splits are cosmetic. In other words they do not change anything about a company’s underlying fundamentals. They only help renew interest from smaller investors by making the shares — which become cheaper — more accessible. But that interest would not be enough to influence the share price more so than larger investors already freely trading the stock.
That being said, the current pandemic climate has thrown much of financial forecasts for 2020 into disarray. Just the dramatic drop in per-share price for Apple from its peak in February to April of this year is enough cause for alarm to make any savvy company proceed with caution.