Split 4 to 1 in Apple stock?
Why is Apple diluting stocks?
The capitalization of the American company Apple has grown to $1.93 trillion. The company has already earned $209 billion for the three financial quarters that are higher than indicators of the last ‘non-crisis’ year. Apple has the largest capitalization in the world as a non-government company. And it is suspected that the company’s capitalization would have exceeded $2 trillion if it had not been for the weekend and sales closing.
Major growth was thanks to consumers’ increased interest in the company services. Almost a quarter of the total revenue came from App Store sales and subscriptions like AppleTV +, Apple Music, etc.
Another reason why Apple's stock price may continue to rise is called a ‘split’. Apple has announced a 4-to-1 split of shares. It means that the total number of outstanding shares will quadruple, and investors will receive three more shares for each one. The price of one share will reduce by four times. Since the capitalization remains the same, the price of one share will drop from the current $445 to about $100.
Apple shares are included in the Dow Jones Industrial Average (DJIA) the value of which is calculated based on the arithmetic average of all securities the index includes. At the moment Apple is the most expensive share in the index, so the change of its price will cause the greatest impact on the DJIA among all other companies. Apple will fall into 15 or 16 positions in the index of 30 after the split.
The split process will start on August 24, and trading will resume on August 31 at new prices. It’s not the first time Apple splits the shares. The company has already applied such an approach four times:
2-to-1 in 1987,
2-to-1 in 2000,
2-to-1 in 2005,
7-to-1 in 2014.
The main reason for the split is believed to be the high price of the shares. The more expensive the shares are, the less interest they have among small investors who are willing to invest small amounts of money. So companies make a split that greatly lowers the investment entry threshold. As a result, stocks become more attractive and begin to rise in price since the growth in demand.
It’s obvious that this split won’t have significant influence. There will be no qualitative change for big investors who buy shares worth millions of dollars. Small investors are unlikely to be able to buy so many shares that it somehow affects Apple’s quotes. So Apple’s decision to split can be considered an attempt to get closer to people. After all, this does not incur additional costs to the company, and those who bought a new iPhone may want to hook into Apple a little more.
