Granted, there are good reasons why a company might decide to split its stock, but ultimately a split happens because a company (and therefore its stock price) is growing. Three other tech companies that have grown rapidly and could follow Apple and Tesla’s lead are Intuitive surgery (NASDAQ: ISRG), Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), and Amazone (NASDAQ: AMZN).
The leader in robotic surgery
Nicholas Rossolillo (chirurgie intuitive): Intuitive is far ahead in the field of robot-assisted surgery. The company’s da Vinci surgical system was approved for use in the United States 20 years ago, and the resulting two decades have made the company a leader in healthcare technology, valued at a market capitalization. market of more than 84 billion dollars.
2020 has been a difficult year for Intuitive. With shelter-in-place orders from around the world taking effect, the number of interventions performed with da Vinci decreased by 19% in the second quarter. Intuitive also announced the release of new extended-use instruments that can be used 12-18 times (compared to current use of 10 times), which will reduce instrument sales in the future, but also lower costs for clients (and, hopefully, patients).
However, even in the midst of the crisis, the new da Vinci machines in service continue to multiply around the world. Intuitive reported that its total installed base of da Vinci systems increased 9% from a year ago and reached 5,764 systems by the end of June. As a result, while fewer surgeries resulted in a 22% drop in revenue to $ 852 million in the second quarter, the company is expected to quickly return to growth mode. And in the meantime, it’s still a very profitable business, with adjusted net income of $ 132 million during the period.
Thanks to its leadership and strong growth, Intuitive Surgical shares exceed $ 700 at the time of writing, more than double the value of three years ago when the company proceeded to a 3-for-1 stock split (when Intuitive was close to $ 1,000 per share). With the company continuing to benefit from the slow and steady migration from traditional surgery to robot-assisted surgery, another split would not be out of the question.
Alphabet’s split is coming, but probably not soon
Anders Bylund (Alphabet): Google Parent Alphabet has an unusual history when it comes to stock splits. The company split its shares just once, issuing a 2 for 1 split in 2014 which created a new class of non-voting shares. Google founders Sergey Brin and Larry Page retained their Class B special shares, which hold approximately 56% of the effective voting rights of the company. The issuance of new shares in a non-voting category allowed the founders not to lose their absolute power in shareholder votes.
The moves sparked a storm of controversy, including several lawsuits. In order to comply with a court order to settle these lawsuits, Google issued an additional $ 522 million in Class C shares (the non-voting type) a year later, in the form of a dividend which issued 1.0027455 shares for each class. C shares that you owned. Rather, fractional shares were handled by cash payments.
Alphabet’s stock prices have almost tripled since the 2014 split, so it might be time to issue another batch of non-voting shares for every Class A or Class C stub in your portfolio. I don’t think company executives and board members are looking for a seat Dow Jones Industrial Average, as Apple did over the summer, so this would just be a shareholder-friendly change.
Brin and Page announced their intention to create the third class of shares through a stock split in 2012, citing split requests from “many of our investors”. You see, they pay attention to the needs of independent shareholders. It took two years to realize this plan. Alphabet has the trio of share classes already in place, so the process could be faster this time around, but this company doesn’t like to rush things. So I wouldn’t be surprised to see a preliminary announcement someday soon, followed by the actual separation many moons later.
Party like in 1999?
Billy Duberstein (Amazon): Given the recent surge in interest in Apple and Tesla following the announcement of their stock split, it’s not unthinkable that other big tech giants are considering a similar move. Amazon is the most expensive stock among FAANG stocks, and has been for some time, so the e-commerce and cloud leader may be considering a stock split today. At the current high price of around $ 3,300, its price is certainly on the rise for retail investors to buy, unless they have an account that allows the purchase of fractional shares.
Many may not remember it, but Amazon has actually split its stock before – even though it was over 20 years ago. During the height of the dot-com boom of the late 1990s, Amazon split its stock several times, including two separate 2-for-1 splits in 1998 and 1999, and then another 3-to-1 split in 1999.
Back then, Amazon’s stock price was rising more and more as investors rushed to jump on the internet boom bandwagon. However, that party ended badly and the dot com bust that followed took Amazon’s stock down 90% and its share price to single digits. This can be a problem, as many investors view single digit stocks as a sign of trouble, or at least the more speculative end of the spectrum.
Amazon never split its stock again, and of course its stock continued to make fortunes for longtime investors.
Perhaps CEO Jeff Bezos is superstitious and attributes the incredible journey the company has made over the past decades to not having divided its shares since. Another possibility could be that Bezos is removing a page from Warren Buffett’s playbook at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), aiming to never split Amazon stock in order to attract long-term buy-and-hold investors. After all, one of Amazon’s main competitive advantages is that it invests for the long term, with a much longer time horizon than most other companies. Likely, Bezos has sought to attract the type of long-term buy-and-hold investor that aligns with Amazon’s corporate strategy. It has certainly paid off so far.
Nonetheless, even Berkshire Hathaway unveiled a second, cheaper class of B shares in 1996, albeit somewhat reluctantly. This was great news for small investors who wanted to invest in Berkshire at the time but couldn’t afford the roughly $ 22,000 that A-shares were going for. Today, Berkshire A shares are trading at $ 331,000 per share, and B shares are more affordable at $ 220.
Amazon’s share price isn’t as out of reach as Berkshire’s, but considering Amazon’s incredible growth in business since the dot-com bust, including the huge milestones From the launch of Amazon Prime in 2005 and the rise of Amazon Web Services, which took off in the 2010s, I would say that Amazon’s business is much more resilient today.
The recent price spikes for Apple and Tesla around their stock splits may prompt Bezos to change his mind about stock splits. After all, he’s been selling Amazon stock periodically in recent years, not because it’s down, but because Bezos is personally funding his space exploration company, Blue Origin. As such, if Bezos believes that Amazon’s stock market valuation can be boosted by a stock split and renewed interest from retail investors, there’s no question that Amazon will experience a split in the months or years to come.