Please ensure Javascript is enabled for purposes of website accessibility

Is Amazon's Stock Split Starting to Pay Off?

By Keith Speights - Aug 2, 2022 at 5:55AM

Key Points

  • Amazon's 20-for-1 stock split in early June didn't provide a catalyst for the stock.
  • The missing ingredient then was that small investors didn't have ample motivation to jump aboard.
  • A recent string of good news for Amazon plus its lower share price could be attractive for small investors.

Motley Fool Issues Rare “All In” Buy Alert

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

It's impossible to know for sure just how much Amazon's lower share price is making a difference now.

The conventional wisdom is that when a stock price increases too much, small investors can't afford to buy. Companies can easily solve this problem, though, by conducting a stock split. The share price becomes affordable again. Small investors will then buy in droves, serving as a nice catalyst.

However, reality doesn't always follow the conventional wisdom. Amazon (AMZN -0.91%) conducted a 20-for-1 stock split in early June. Afterward, the formerly high-priced stock was easily affordable for small investors. But there was no catalyst. Amazon stock actually sank instead of soaring after its stock split.

Fast-forward to today. Shares of the e-commerce and cloud giant have skyrocketed close to 30% over the past four weeks. Is Amazon's stock split starting to pay off?

A missing ingredient in June

One important thing to understand about stock splits is that they don't occur in a vacuum. Sure, splits make stocks more affordable. However, there are other factors that impact whether or not investors will start buying in heavy volumes.

There was a key missing ingredient for Amazon when the company conducted its stock split in June. Many small investors didn't have the motivation to buy.

Amazon's quarterly update in April disappointed Wall Street. The company reported excess capacity in its fulfillment and transportation network that it expected to affect costs for several quarters to come.

Negative perceptions can last for a while unless something quickly happens to change them. Some thought that Amazon's 20-for-1 stock split would do the trick. However, the split by itself wasn't enough to turn things around for the stock. Small investors still needed a compelling reason to buy shares of Amazon.

Recipe for a rebound

Amazon began providing some compelling reasons to buy the stock in July, though. For one thing, the company reported a record-setting Prime Day. Across the world, customers bought on average more than 100,000 items per minute during the two-day event. 

Speaking of Amazon Prime, Amazon also made the service more attractive than ever to customers by teaming up with Grubhub. Under the deal, Prime members can sign up for a free one-year membership to the free unlimited restaurant delivery service Grubhub+. In addition, Amazon received warrants to buy 2% of Grubhub -- something that investors liked.

Amazon also announced plans to acquire One Medical for $3.9 billion. The purchase of the primary care provider signals a major move by Amazon to further expand into healthcare.

Most importantly, though, Amazon reported stellar Q2 results in July. The company handily topped Wall Street expectations. Amazon Web Services especially stood out, with the cloud-hosting unit delivering 33% year-over-year revenue growth. Amazon even provided a bullish outlook for Q3 2022.

Unsolved mystery

Would Amazon's shares have taken off with all of this good news in July even if the company hadn't conducted a stock split? Yes. Would the rebound have been as big were it not for the stock split? That will likely remain an unsolved mystery.

There's no way to know for sure how much Amazon's bounce would've been if its share price was still well above $2,000. It's possible that the resurgence in recent weeks would have been more muted. On the other hand, Amazon's sky-high share price hasn't seemed to hurt the stock's performance in the past.

Perhaps the best answer is that at least some part of the current momentum for Amazon is due to its lower share price. Some investors are likely now buying the stock who wouldn't have done so when Amazon's share price was at a nosebleed level. Maybe, just maybe, Amazon's stock split is now really beginning to pay off.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$134.16 (-0.91%) $-1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.