Apple Announces Stock Split

MacRumors

macrumors bot
Original poster
Apr 12, 2001
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Apple announced today that their Board of Directors has approved a 2 for 1 stock split, increasing the number of common shares from 900 million to 1.8 billion.

Each shareholder of record at the close of business on February 18, 2005 will receive one additional share for every outstanding share held on the record date, and trading will begin on a split-adjusted basis on February 28, 2005.
A stock split simply decreases the cost of purchase of each share while proportionally increasing the number of shares available. This does not change the value of the stock owned by current shareholders.
 

arn

macrumors god
Staff member
Apr 9, 2001
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Bigheadache said:
Hmmm, not sure why you guys think this is good news. Stock splits don't mean anything.
I think it's generally seen as a positive sign about prospects for the company.... but yes, at face value, it doesn't mean much.

arn
 

ac2102

macrumors member
May 12, 2003
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0
Bristol - England
What is the effect of doing this? I understand the fact that there are now twice as many shares available at half the price, but what is the real economic effect?

-ac2102
 

virus1

macrumors 65816
Jun 24, 2004
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LOST
Beautiful! This means apple anticipates thier growing just as much as we do. Wonder how the market will react, if at all.
 

Bigheadache

macrumors 6502
Mar 1, 2004
271
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ac2102 said:
What is the effect of doing this? I understand the fact that there are now twice as many shares available at half the price, but what is the real economic effect?

-ac2102
There is no real effect. Occasionally you get a bit of exuberance (a bit like what we see in this thread already) and the price spikes, but afterwards it should settle down as rational investors realise its a non-event. If you are interested, look up 'Miller and Modigliani'
 

deputy_doofy

macrumors 65816
Sep 11, 2002
1,351
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Doofy now wishes he had more than 10 shares. Though, Doofy did buy those 10 shares at $19 and change. So, Doofy made a small profit (well, if I sell).
Maybe I'll buy some more after the split...
 

sinisterdesign

macrumors 6502
Dec 10, 2003
421
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atlanta
ac2102 said:
What is the effect of doing this? I understand the fact that there are now twice as many shares available at half the price, but what is the real economic effect?

-ac2102
since i'm no finance whiz, i'll let Investopedia.com explain:

"A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their industry. The primary motive is to make shares seem to be more affordable to small investors even though the underlying value of the company has not changed.

A stock split usually results in a share price increase since many small investors think that the stock is more affordable and buy the stock. Another reason for the price increase is that a stock split provides a signal to the market that the company's share price has been increasing and people assume that this growth will continue in the future."
 

Avicdar

macrumors regular
Oct 11, 2004
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Toronto
Bigheadache said:
Hmmm, not sure why you guys think this is good news. Stock splits don't mean anything.
Not so.

When a company splits its stock, the newly priced stock becomes more attractive to a wider range of market investors. It also introduces a bit of a momentum potential to the stock. (i.e. a stock priced at 70 dollars may be seen as maximum value for the stock, but reduce that to 35 dollars and it is judged as having room left to grow).

Of course, the doubling of the available shares does in reality cancel out this effect from a market capitalization point of view, but not everyone pays attention to that.

Apple is likely betting that the split will encourage more people to buy and give the stock another run.
 

Bigheadache

macrumors 6502
Mar 1, 2004
271
0
Avicdar said:
Not so.

When a company splits its stock, the newly priced stock becomes more attractive to a wider range of market investors. It also introduces a bit of a momentum potential to the stock. (i.e. a stock priced at 70 dollars may be seen as maximum value for the stock, but reduce that to 35 dollars and it is judged as having room left to grow).

Of course, the doubling of the available shares does in reality cancel out this effect from a market capitalization point of view, but not everyone pays attention to that.

Apple is likely betting that the split will encourage more people to buy and give the stock another run.
You mean it seems more attractive for moms and pops. For instos and pension funds (basically the investors that count), it means nothing. Analysts are still only interested in earnings, a stock split does nothing for that.
 

machowiak

macrumors newbie
Feb 11, 2005
2
0
Higher stock price

ac2102 said:
What is the effect of doing this? I understand the fact that there are now twice as many shares available at half the price, but what is the real economic effect?

-ac2102
Whoever wrote the article for MacRumors.com was wrong by saying that it does absolutely nothing for the value of the stock. In *theory* it shouldn't do anything, but nothing in life ever works like it should on paper.

The reason companies split a stock is because sometimes a stock will become too expensive for the average investor to purchase. Since the average investor knows less about what stocks should be valued at than the pundits, they will inflate the price of the stock. For example: Let's say you have a stock that's valued at $100. Some brokers have minimums that you can buy when you place a purchase order for a stock. Often times it can be as high as 10,000 shares. So, if you have to purchase 10,000 shares at $100, we're talking about $1,000,000. If you split the stock, many more people will be able to buy 10,000 shares for $500,000 than for $1,000,000. Thus, the higher the demand, the higher the stock price will go (basic economic theory). As a result, you could have a pre-split price of $100 but you could have a post-split price of, say, $60. Two shares at $60 = $120. Thus, Apple is increasing the stock price by really doing very little.

The whole point of a publicly traded company is to increase the value of its stock. Stock splits are the quickest and least time consuming way to do this.
 

Bigheadache

macrumors 6502
Mar 1, 2004
271
0
machowiak said:
Whoever wrote the article for MacRumors.com was wrong by saying that it does absolutely nothing for the value of the stock. In *theory* it shouldn't do anything, but nothing in life ever works like it should on paper.

The reason companies split a stock is because sometimes a stock will become too expensive for the average investor to purchase. Since the average investor knows less about what stocks should be valued at than the pundits, they will inflate the price of the stock. For example: Let's say you have a stock that's valued at $100. Some brokers have minimums that you can buy when you place a purchase order for a stock. Often times it can be as high as 10,000 shares. So, if you have to purchase 10,000 shares at $100, we're talking about $1,000,000. If you split the stock, many more people will be able to buy 10,000 shares for $500,000 than for $1,000,000. Thus, the higher the demand, the higher the stock price will go (basic economic theory). As a result, you could have a pre-split price of $100 but you could have a post-split price of, say, $60. Two shares at $60 = $120. Thus, Apple is increasing the stock price by really doing very little.

The whole point of a publicly traded company is to increase the value of its stock. Stock splits are the quickest and least time consuming way to do this.
the flaw in your statement is that professionals, instos, and pension funds make up the big portion of investors and they see through this, plus they aren't impacted by minimum parcel sizes. As a result, the window where prices spike is very small. If there is a gain, you can bet it will be arbitraged out.
 

Mantat

macrumors 6502a
Sep 19, 2003
619
0
Montréal (Canada)
Guys, the real reason for stock split is to increase trade volume. Because the more volume there is, the easier it is to sell/buy the stock and it increase speculation which in turn can increase the stock price on the short run.

Basicaly, its a bad thing for long term investor but doesnt change anything for everyone else.

I think Apple did this because they want to increase stock volume to create a momentum because at the recent price increase.

But seeing how many of the financialy illiterate people there are in the world, I guess it was a good move by apple to do so...
 

Platform

macrumors 68030
Dec 30, 2004
2,881
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Many people I know regret not buying apple stocks before they went up :(
Should have done too, or is it still going to go (I think so/look's that way :rolleyes: )
 

Avicdar

macrumors regular
Oct 11, 2004
189
0
Toronto
Bigheadache said:
You mean it seems more attractive for moms and pops. For instos and pension funds (basically the investors that count), it means nothing. Analysts are still only interested in earnings, a stock split does nothing for that.
I think you underestimate the impact of non-institutional investors. I am not suggesting that they carry the company, but they do have an impact. Sometimes a little momentum is all it takes to get the big fish into the pond.
 

StudioGuy

macrumors regular
Nov 4, 2003
121
0
It does matter, pyscologically. There are stocks that have split many times over. Imaging those charts, IPO at $20 and now trading in the hundreds or thousands over many years.

Lowly investor then can only buy what, a few shares, instead of a few hundred or a thousand?

It helps, and is a message that they think there is room to grow. If they didn't, they'd be taking those teens and twenty dollar trading values last year and make them look like single digits if they thought this was just a bubble, and not a new growth path for AAPL.

Have fun anyway...
 

Bigheadache

macrumors 6502
Mar 1, 2004
271
0
Avicdar said:
I think you underestimate the impact of non-institutional investors. I am not suggesting that they carry the company, but they do have an impact. Sometimes a little momentum is all it takes to get the big fish into the pond.
As I said before, if they are silly enough to push out the price, it won't last, gains will be arbitraged out by the smart investors. Not sure if you know much about the investment industry, but there are a ton of long/short, and arbitrage hedge funds who would jump on anything like this.
Its basic financial theory that prices are only effected by news which affect earnings.
 

Koodauw

macrumors 68040
Nov 17, 2003
3,936
165
Madison
I knew this was coming. Martha clued me in ahead of time.
Overall good knews. Keep up the growth Apple.