Stock splits aren’t a new thing for famous companies, this important event has been present in our realities since 1980.
 

What is a Stock Split?

A stock split simply could be defined as an increase in the number of shares of one company's stock without a change in the shareholders' equity. Stock splits are a common phenomenon for big corporations.

The main reason why companies do stock splits is to make them more affordable to new investors.

These splits don’t make the companies less valuable.

When the stock of one particular company reaches a high price point, it is common for them to do a stock split. Because high prices make it really difficult for new investors to jump in.

The company often uses a particular ratio to indicate how many new shares each existing share will be divided into.
The common ratios are 2-for-1 or 3-for-1. This means that one share is divided into 2 or 3 new shares/stocks, but this is not always the case.

What does that mean? Are there more ratios?

The answer is YES!

Amazon, the online shopping giant, recently decided to split its stocks into 20-for-1 radio.

For example: if one stock is worth $2000, after being split into 20 new individual stocks each one of them will be worth $100.

Amazon's Big Stock Split (AMZN)

Amazon as one of the most successful businesses in the entire world reported revenue of $470 billion, growing by up to 22% year-over-year. Their net profit was $33.4 billion, which estimates a 56% increase over the prior year. Obviously signaling that this business is prospering.

The announcement about Amazon’s stock split took place on 09th of March 2022. This is the first stock split since 1999.

Before the stock split happened Amazon’s shares were trading at 2000$ per share, at a high price point.

But, Monday 06th of June was the first trading day after the split where the shares closed 2% higher at $124.80, after hitting an ultimate high of $128.70 early in the same session.

Besides making Amazon’s shares more affordable to new investors, another reason for this stock split is the possibility of Amazon becoming a part of the Dow Jones Industrial Average Index. Which is a famous American index that includes only 30 famous corporations.
This index doesn’t allow high-priced stocks to enter its list because that could harm the overall performance of the index.

Amazon is not the only one to do a stock split in 2022. Google’s Alphabet (GOOGL) also reported a 20-for-1 stock split that is scheduled to take place later in July of 2022.

Let’s take a look at what is happening with the Alphabet (GOOGL) stock.

Alphabet (GOOGL)

GOOGL stock experienced an increase of 65% in 2021. But so far in 2022, shares have dropped by 18%. Alphabet is organizing a stock split that will take place on the 15th of July, following the same ratio as Amazon, meaning that each shareholder will get 19 additional shares, for one share they own. Alphabet is currently trading at 2.229,75$ per share.

But, if we take a look at the bigger picture, Alphabet has struggled with its year-over-year growth in 2022.

This stock split might be a good decision to welcome new investors. Where the stocks will be divided into the company’s Class A, Class B, and Class C shares.

Class A shares and Class C shares are available to the public, but Class B shares are exclusively owned by the company’s founders and select directors.

The news about Alphabet’s stock split affected the markets in a positive way. GOOGL stock jumped 10% to an all-time high of $3,030 a day after the announcement of this stock split.

Will this stock split mean an opportunity to join the Dow Jones Industrial Average Index, same as Amazon? 

This is not guaranteed yet, but it is one step closer to becoming a part of this index.
It is estimated that Alphabet’s stock will be placed at 150$ per share, following the split, based on the prices noted on the 09th of June.
 

Advantages of a Stock-Split

Investors have divided opinions when it comes to Stock Splits of different companies, there is no right or wrong answer to the question ‘what will happen?’ and how the market will react to this kind of occurrence, but,  based on different analyses what we know so far is the following:  

1. Markets tend to react in a positive way when a Stock Split is announced.
2. Companies have higher liquidity.
3. There is a potential price increase.
4. Better affordability for everyone.

Now, after taking a peak at the benefits of splitting stocks, it is time to answer one really important question:
 

Which one is a better Stock-Split Buy: Alphabet or Amazon?

Keeping in mind the low prices of both shares, investors could afford to invest in both.

We know that it's really difficult to choose between these two.

These stocks are basically fighting for the place on the top in the capital markets and have a rating of 'strong buy'. Both stocks have experienced losses so far in 2022.
Alphabet's shares are down around 20% this year so far and Amazon’s shares have plunged 30% this year so far, where the stock was hit hard after Amazon’s disappointing Q1 results in April.

In terms of long investments both of these companies will be the top pick and will continue to be a part of big portfolios.

And looking at their expenses Amazon used up 95% of its revenue last year compared to 69% for Alphabet.

Overall, Stock Splits tend to be viewed as bullish events by the investing community, companies that are doing these splits are often outperforming and definitely being better than their competition, they raise in value and are good for the long-term run.

Conclusion

Stock-Split is an increase of a company's shares and usually, they are viewed as a positive change in the investing community. And companies such as Amazon and Alphabet are doing Stock-Splits with a 20-for-1 ratio. Investors suggest that both of these stocks might be a good option to invest in.