Should You Buy Amazon Now or Wait Until After the Stock Split?

AfraSimon
2022-04-24

What to watch ahead of Amazon's earnings call, and how certain trends may impact investors' strategies leading up to the company's upcoming split. Investors seem to love stock splits even though there is no direct effect on the stock's value. After all, what's not to love? Splits are fun, exciting and offer a distraction from the daily rush of financial news. There is often tremendous movement in the stock price around the announcement date and the split date, which in turn affects investors' profits. Amazon$Amazon.com(AMZN)$ is one company preparing for a blockbuster 20-for-1 split in June.

But when is the best time for interested investors to buy Amazon stock: before or after the split? To find out, it can be helpful to examine historical stock movements around recent splits and take a deep dive into Amazon's current challenges and successes. Let's look at some key factors heading into the company's first-quarter 2022 earnings release on April 28.

E-commerce headwinds likely continue

2021 brought a share of challenges to Amazon, and many of these hurdles will likely continue in 2022. Labor was one such challenge. Hiring was extremely tight last year in large part due to the effects of the pandemic and its economic and social fallout. The company absorbed billions of dollars in additional operating costs through increased wages, sign-on bonuses, and COVID-19 mitigation measures.

In a sense, this is just the nature of the beast for a corporation with hundreds of thousands of employees. The good news is that the company did not shy away from this investment or attempt to cut staffing or salaries in order to get its way out of a bind. Investing in employees could pay future dividends through productivity and stability.

Supply chain challenges tied to ongoing coronavirus variants also presented major issues for the e-commerce giant. These logistical delays and dilemmas added more costs to Amazon's bottom line. Add inflation to the mix, and it's no surprise that the company's North American and international segments posted net operating losses in the fourth quarter of 2021, even despite rising net sales.

It's likely that these macroeconomic headwinds will persist in 2022 and continue to cause headaches. Luckily for shareholders, Amazon has a couple of aces up its sleeve.

AWS and advertising shine

Amazon's diverse mix of businesses has been the company's saving grace when dealing with the aforementioned problems.

Amazon Web Services (AWS), for instance, has largely carried the day and still has a tremendous runway. The cloud computing market is snowballing due to increased adoption and more-significant cloud infrastructure needs. AWS's net sales reached $62.2 billion in 2021, representing 37% year-over-year growth. Amazon is the clear leader in this space with about a 33% market share as of the fourth quarter of 2021.

Digital advertising has grown to be a force as well -- so much so that Amazon broke out the numbers in more detail during a recent earnings report. Advertising service sales reached $31.2 billion in 2021, up 146% from the $12.6 billion in 2019. This is a revenue stream to watch during the upcoming report.

Is it better to buy before or after a stock split?

Amazon stock has gained over 10% since the split was announced on March 9, as shown below. The chart shows an immediate positive effect on shares. This could continue in the lead-up to the June split, with earnings also weighing in.

Since Amazon has not split in over 20 years, recent examples of how recent splits impacted the stock prices of other major tech companies will offer helpful indicators to inform investor timing. Tesla$Tesla Motors(TSLA)$ and Apple$Apple(AAPL)$ had stock splits in 2020, and both followed a very similar pattern. These are cogent comparisons to Amazon as each is highly successful and has a large following of retail investors.

As seen in the chart above, both Apple and Tesla stock experienced gains ahead of the split date which dropped off as the event passed. Tesla's rise was much more pronounced, but the pattern is clear. Of course, this does not mean that Amazon will follow the same pattern.

The factors discussed above could outweigh the emotional trading surrounding the split. But history does tend to repeat itself -- even in the stock market. Patient investors are often rewarded.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • Dazza7
    2022-04-25
    Dazza7
    I would wait till the split. But there wouldnt be much of a difference
  • Nylegnave
    2022-04-24
    Nylegnave
    Wait till after! As theres people who take advantage of ghe upward spike when a stock split is initially announced but the hype soon dies down
  • GerryLoh
    2022-04-24
    GerryLoh
    good sharing thanks
  • Road1Warrior
    2022-04-28
    Road1Warrior
    even though it doesn't make any difference on the book but stupid people tend to bid up the price after the split so idiots does what idiots does
  • jllwang
    2022-04-25
    jllwang
    Thanks for the perspective
  • Xman0808
    2022-04-24
    Xman0808
    Bought 1 share now
Leave a comment
2