An Amazon stock split could lure retailers into a tough market

The Amazon logo appears at the company’s logistics center in Bretagne-sur-Orge, near Paris, France, December 7, 2021. REUTERS/Gonzalo Fuentes/Files

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NEW YORK (Reuters) – The Amazon (AMZN.O) stock split may provide some solace to shareholders who have watched the e-commerce giant’s shares suffer this year.

Amazon shares rose 3.1% to $126.17 in the afternoon after the 20-for-1 split, which was announced earlier this year but went into effect on Monday. It’s down 24% year-to-date, roughly equaling the loss in the Nasdaq Composite (.IXIC), as higher interest rates slam risk appetite and pressure stocks of high-growth companies.

Market participants said that while the split had no effect on the company’s fundamentals, it could help drive up its share price by making it easier for a larger group of investors to own the stock.

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“Stock splitting is definitely linked to successful stocks,” said Steve Sosnick, chief strategist at Interactive Brokers. “Psychology remains that a stock split is good. We can debate whether it’s good or not, but if the market sees it’s positive, it acts like it’s positive.”

Analysts at MKM Partners believe the rally in Amazon shares since May, during which they cut their year-to-date loss by a third, was helped by the anticipation of the split.

“While we view this event as a largely non-fundamental one, we believe the stock split and potential retail trading activity could provide an additional catalyst to shift sentiment around AMZN shares,” MKM’s Rohit Kulkarni said in a note on Monday.

A stock split could increase the participation of retail investors, who, on average, tend to trade at smaller volumes due to their limited capital, compared to institutional investors, according to a Cboe report published in May.

The effect was most pronounced for stocks with the largest market capitalization, according to the report, which analyzed 61 stocks across all categories of market capitalization that have split since 2020.

Retail investor ownership of Amazon stock has been relatively low, compared to strong retail activity in the company’s options — a sign that the four-digit stock price may have stalled, said Peng Cheng, head of big data and artificial intelligence strategies at JPMorgan. individual traders.

“Psychologically, it’s not a good idea to spend $1,000 and own a third of the stock,” he said.

BofA Global Research has found the splits are “historically bullish” for the companies they apply, with their shares reporting an average return of 25% after one year versus 9% for the market overall.

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Analysts said a stock split could increase the pool of investors able to indulge in options, especially for stocks that are highly valued in dollars.

For example, on Friday, a trader looking to bet on Amazon stock that had risen 12% by July 1 had to pay nearly $2,900. A bet on the same percentage gain in stocks by July 1 cost about $135, on Monday, according to Reuters calculations.

However, options aren’t quite as aggressively in the market as they were last year at the height of so-called meme stock mania.

“Had this happened a year ago, when individual traders were fond of speculating on phone calls in a way no one had seen before, it would have been much more dangerous,” Sosnik said.

stock split

Of course, the stock split alone is unlikely to overcome the host of other factors that have driven stocks lower this year, including concerns about tighter monetary policy and high inflation in decades.

Meanwhile, the rise of commission-free trading and the rise of fractional stocks has taken away some of the immediate appeal of a stock split for investors, said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research.

“It’s not as big of a deal as it used to be,” Frederick said.

Amazon is the latest massive company to split its stock. Other companies that have split their stock since 2020 include Apple (AAPL.O), Tesla (TSLA.O), and Nvidia (NVDA.O).

Alphabet Inc (GOOGL.O) also announced a 20-for-1 stock split in February, and the split is expected to take effect next month.

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(Reporting: Saqib Iqbal Ahmed and Louis Krauskopf). Additional reporting by John McCrank. Editing by Ira Yusbashvili and Nick Szyminski

Our Standards: Thomson Reuters Trust Principles.

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