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Amazon’s latest 20-for-1 stock split takes effect

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Yahoo Finance Live anchors discuss how Amazon is the latest tech company to undergo a stock split.

Video Transcript

- Another company that we're watching this morning-- we've got to talk about Amazon. Amazon's first day of trading after its recent stock split took effect, reducing the price of a share of the e-commerce giant to 1/20th of its previous price for any would-be buyers.

Now, Amazon split, it hopes to bring in more retail investors that would otherwise be put off by the higher pricing. And frankly here, it's also about if the company is able to get into-- and some of the other tech companies that are trying to throw their hat into the ring towards getting into the Dow Jones Industrial average.

This a very concerted bid that we've seen really initiated by some of the most recent stock splits that have taken place this year, or are set to take place. Amazon, one of them, of course, Google another massive one that we had heard from earlier this year, too.

- Yeah, so a word of caution to folks, if you're looking up Amazon shares this morning and it looks like they're down 95%, they are not, in fact, down.

- Don't have a heart attack.

- It's-- it's because of this stock split that is taking effect. And you know, this is all-- this has nothing to do with the fundamentals of the company, right? We should make that clear to viewers. This is an attempt at increased accessibility, or at least psychological accessibility, right? You can buy a fractional share of Amazon at $2,000, or whatever, you can buy a piece of that.

But it's easier to wrap your head around buying it at $125 a share, if you will, than buying a fraction of the larger number. Our friend Steve Sosnick over at Interactive Brokers this morning, pointing out that even though it doesn't make-- it doesn't have an effect overall, it does have an effect on the options, and it does make them more accessible.

So given the incredible explosion we have seen in options trading, that is something to consider here, when you look at the Amazon story.

- And a fun fact, too, from the folks over Bank of America, noting this, S&P 500 companies that have announced stock splits since 1980-- I think that was well before Brian Cheung was born-- have returned an average of 25.4% over the following 12 months. It will be interesting to see if Amazon, which has seen weakening fundamentals over the past two quarters, high levels of expenses, a slowdown in sales, let's see if those retail investors step up here and buy the stock at a cheaper price.

- We will see. We'll also, see, by the way, you know, remember, of course, Alphabet is also preparing to split. So what effect is all of this going to have on going into the Dow Jones Industrial average? On the one hand, because it's a price weighted average, could make it more likely to go in.

On the other hand, as well, these stocks with these post splits are lower probably than the company had bargained for, right. When they first announced this split, I think the Amazon shares are down about 12% since that announcement. So now that you've sliced it a little smaller, maybe it's a little lower than they would have planned.