Many firms and founder owners enhance the value of their respective firms in the public equity markets by conducting stock splits. While stock splits do not necessarily create economic value in the ordinary sense, but they do have a positive impact on the stock price usually. The psychology of investors makes them more attracted to smaller numbers when considering a stock for purchase, other things being equal. And a stock split gives a boost to liquidity in the market for that company as well. These 3 firms can create incremental shareholder value by splitting their stocks:
1. Amazon.com, Inc. (NASDAQ:AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) has more than 209 million registered customers in its platform who love shopping on its site, and merchants who want to sell on Amazon. The company’s market cap has surpassed the $140 billion mark with a share price of $308. Amazon.com, Inc. (NASDAQ:AMZN) became a publicly traded company in 1997, and it has undergone 3 stock splits already during the Internet bubble of 1998-2000. And the company can create additional value for its stockholders by creating another stocks split driven by momentum traders at current levels, since it is trading at record highs.
The company now operates in roughly 10 countries, but in the future Amazon.com, Inc. (NASDAQ:AMZN) will almost certainly expand into newer countries and develop more e-Commerce platforms. And Amazon can sustain double digit revenue growths for a number of years, as the company earns incremental revenues from its newer business ventures
And also some of Amazon.com, Inc. (NASDAQ:AMZN)’s smaller revenue outlets including Third Party (3P) selling, Amazon Web Services and the Advertising business has much higher profit margins compared to its core retail business. An improved margin profile will create a much more clear and compelling valuation case for Amazon in the future as well.
2. Apple Inc. (NASDAQ:AAPL)
Apple Inc. (NASDAQ:AAPL)’s stock has been clouded with a lot of pessimism, even though the company has announced big dividend payments and sizable share repurchases. Investors have become skeptical of Apple not revealing much about its product pipeline, and are questioning its ability to innovate. And also the company’s growth rates are slowing down, and profit margins are contracting. However, the company still rolls out healthy profits on an absolute dollar basis, and has a big fan following as well. Also, Apple Inc. (NASDAQ:AAPL) has in excess of 575 million registered users of its services.
The increased penetration level of smartphones across the developed world, along with heated competition in the market for mobile devices has made numerous investors jittery towards Apple Inc. (NASDAQ:AAPL). The company went public in 1980 and already conducted 3 stock splits since that time. Apple can create additional value for its existing shareholders by splitting its stock, and enabling additional liquidity and adding a broader investor base for its stock.
Since the attitude towards owning Apple Inc. (NASDAQ:AAPL) has been rather negative in 2013, the company can enhance its market cap by doing a stock split in the near future. Apple’s senior management has said that the company has looked into a possible stock split, but hasn’t executed one yet. And the company’s CEO did state that Apple might consider a stock split in the future.
Apple Inc. (NASDAQ:AAPL) is expected to unveil a lower priced iPhone handset to earn more revenues from this business segment. iPhone revenues make up more than 50% of Apple’s total revenues, and the falling growth rates from the segment concerned many investors. But if Apple can come up with lower priced phones and larger screen phones the company can drive its growth rate and gain more confidence from investors.
3. Netflix, Inc. (NASDAQ:NFLX)
The high-flying Netflix, Inc. (NASDAQ:NFLX) has been a top performer in the S&P 500 in 2013. The company is trading near 52 week highs, after it has portrayed its ability to grow its subscriber base in the U.S. and in the International market. The innovative Netflix has gone from being a curator of commodity content to becoming a producer of original shows, which has driven its subscriber additions a lot in 2013. The company now has close to 30 million members in the U.S. and almost 8 million in the International market for its growing Internet TV platform.
Netflix, Inc. (NASDAQ:NFLX) is investing heavily in adding more and more content for its subscriber levels, and hoping to turn its International operations around. The company’s International business is losing money and the company’s management is projecting losses from the overseas operations to persist for another 2 years or so. Netflix is trying to build a global franchise for its Internet video streaming business and is now operating in more 40 countries across the globe. The company snapped up 14 Emmy Award Nominations and is fast proving its ability to be an original content company.
With the company’s stock hitting new highs recently, the company can create even more value for its investors by doing a stock split. The last time Netflix, Inc. (NASDAQ:NFLX) did a stock split was way back in 2004, and can pursue a 2-for-1 or even a 3-for-1 stock split to grow its market cap even more.
In its most recent earnings release, the company’s management clearly laid out their intention to grow the breadth of its original programming into more documentaries and stand-up comedy specials. The company is rapidly following in the footsteps of Time Warner Cable Inc (NYSE:TWC)‘s HBO. Netflix, Inc. (NASDAQ:NFLX) has gained a lot of ground on HBO already, and will have a original content library very similar to HBO’s in the future.
Creating shareholder value
Even though stock splits don’t create any real value, they do bring in newer investors on board. By making a stock more accessible to a wider net of investors the likes of Netflix, Apple and Amazon can unlock additional value for their respective shareholders. All these 3 companies have stock prices that trade well above $200 a share, and can squeeze out more value for investors by splitting their shares into smaller pieces.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix.
The article 3 Companies That Can Split Their Stocks originally appeared on Fool.com and is written by Ishfaque Faruk.
Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
