Stock splits have become more frequent on Wall Street in recent years. alphabet, Amazonand tesla Join the trend. Stock splits may not dramatically change a company’s valuation, but they can serve a purpose, such as allowing more retail investors to buy shares at a lower price.
One technology company that has not participated so far is meta platform (NASDAQ:Meta), Facebook, Instagram and WhatsApp. However, the company’s stock price is hovering near all-time highs, so it could benefit from a split. Let’s find out more.
What is a stock split?
A stock split is when a company increases the number of outstanding shares while maintaining its market capitalization. This means that each existing shareholder will receive more shares, but their total investment remains the same.
To illustrate, let’s say you’re an investor who owns 10 shares of a company worth $100 each. If the company decides to implement his 2-for-1 stock split, your holdings will double to 20 shares and the stock price will be halved to $50 per share. It is important to emphasize that a stock split does not change the fundamental value of an investment. Instead, the number of shares you own will be adjusted. In this example, the investment amount was $1,000 before and after the stock split.
Why do companies split their stocks?
The high trading prices of shares of companies such as Meta Platforms may create a barrier to entry for certain investors. Fractional shares are easily accessible through many brokerage platforms, but notable exceptions like Vanguard do not offer this option. In theory, a lower stock price could increase accessibility and increase demand for a company’s stock, which could increase its market capitalization.
Tesla CEO Elon Musk has previously argued that lower stock prices can help companies both attract and retain talent, including through stock compensation packages and employee stock purchase plans.
Whether a company is included in a price-weighted index. Dow Jones Industrial Average, which is determined from the average of all companies’ stock prices, but can also be hampered by stock price increases. As a result, stocks with high stock prices, such as Meta, are less likely to be added because their stock prices can unfairly skew the index.
Meta has never split its stock.
Meta Platforms has never split its stock since going public in early 2012 at $38 per share. For investors who have held on to the stock ever since, the stock has given him an impressive return of 1,133%, outpacing the benchmark S&P 500’s total return of approximately 379%.
Notably, Meta founder and CEO Mark Zuckerberg had planned to split his stake in Facebook in 2016. This included creating a new class of stock with no public voting rights, which would have allowed Mr. Zuckerberg to maintain control of the company. He sold his shares to raise money for charity.
Mr. Zuckerberg withdrew that proposal in September 2017, saying, “Facebook’s business is strong, and the value of our stock allows us to fully fund philanthropy and maintain voting rights in Facebook for more than 20 years.” It has grown to such an extent.”
Should you buy Metaplatform ahead of a potential stock split?
Investing in a company based solely on the possibility of a stock split is generally not a good idea. A company’s financial performance has a much greater impact on its long-term stock price performance. Therefore, it is more important to evaluate Meta’s recent performance and consider the guidance provided by management when making investment decisions.
In 2023, which Zuckerberg deemed the “year of efficiency,” Meta generated $134.9 billion in revenue and $39 billion in net income, up 16% and 69% from the previous year, respectively.
Looking ahead, management has set revenue guidance for the first quarter of 2024 in the range of $34.5 billion to $37 billion, representing a year-over-year increase of 21% to 29%. Management did not provide a revenue outlook, but total expenses in 2024 are expected to be between $94 billion and $99 billion, reflecting a potential increase of 6.6% to 12.2% from $88.2 billion in 2023. He said that
Beyond recent financial results and management guidance, Meta’s strong balance sheet of $47 billion in net cash (cash and cash equivalents less total debt) allows the company to return capital to shareholders. can do. Meta spent $20 billion on share buybacks in 2023, reducing the number of shares outstanding by 2%. The company still has $31 billion remaining in its stock repurchase program as of December 31, 2023. Additionally, the technology company announced its first-ever quarterly dividend of $0.50 per share, representing an annualized yield of 0.4%.
One of Meta’s concerns is how much money it is spending on its Reality Labs division, the company’s virtual reality and augmented reality hardware and software division. In 2023, Reality Labs lost an astonishing $16.1 billion from its operations, which was 17.5% worse than in 2023. Furthermore, Mehta expects these losses to “increase significantly” in his 2024.
Investors will have to wait and see whether Meta’s big bet on Reality Labs pays off. Meanwhile, Meta has generated strong revenue and profit growth while returning capital to shareholders. Given the company’s position as a leader in social networking, growth investors would be wise to consider it for their portfolios, with or without a stock split.
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Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Collin Brantmeyer has held positions at Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Tesla. The Motley Fool has a disclosure policy.
Stock Split Watch: Is Metaplatform Next? Originally published by The Motley Fool
