Why Tesla, Google, and Amazon want to do stock splits
The biggest tech stocks are getting cheaper—or, at least, they seem that way.
On March 28, Tesla announced that it will split its stock for the second time in two years. The decision also follows similar plans from Amazon and Google parent company Alphabet to do 20-for-1 stock splits, drastically lowering their respective share price. If approved, Amazon stock will drop from about $3,300 to $165 while Alphabet will drop from about $2,800 to $140.
Stock splits don’t actually change the value of one’s stock holdings, but rather multiply one’s shares and divide the share price. This is a marketing move, designed to make a company’s stock more enticing to retail investors who feel uneasy about buying fractions of a share of stock—but research shows it actually works.
Recent data from financial analysis firm Vanda Research shows that retail interest does, in fact, surge upon the news of a stock split, a finding confirmed by outside researchers. And Tesla, which is already one of the most popular retail stocks, is expected to fuel even more demand following this news.
The research about stock splits
When Apple announced its stock would split 4-for-1 in July 2020, weekly retail purchases surged from around $150 million to just under $1 billion by the time the stock split in September. In the case of Google and Amazon’s recent split announcements, and Tesla’s August 2020 5-for-1 split, net purchases doubled in the weeks following the news.
“The recent announcement of a stock split will most certainly drive retail interest further,” said Lucas Mantle, data scientist at Vanda Research. The stock split news, along with possible increased appetite for so-called growth stocks, should lead to strong purchasing activity from retail investors in the coming weeks, he added.
Tesla is already a retail darling
Tesla is 39% owned by retail investors—much higher than many tech stocks like Facebook parent Meta (20%), Alphabet (20%), and Amazon (26%). And while it’s on par with Apple (40%), its retail ownership proportion pales in comparison with so-called meme stocks like GameStop (56%) and AMC Entertainment (65%).
On WallStreetBets, the Reddit community famous for popularizing meme stocks, Tesla ranks third among mentioned companies (only behind GameStop and AMC) since 2021, according to Vanda. In that same period, Tesla was the eighth-most purchased US stock daily, behind Apple, chipmakers AMD and Nvidia, and a few others.
Tesla’s popularity, elevated by CEO Elon Musk’s Twitter habit, has been strong throughout the retail trading boom of the last few years. Splitting its stock has helped before. As it tries to appeal to more and more retail investors, it should only help again.