Meta Platforms Potential for Stock Splitting: Under Consideration?
Stock dividends generate a lot of interest among investors, and it's not hard to see why.
Although they don't improve a stock's fundamental value, they reduce the share price, making it more alluring to retail investors. Moreover, they serve as a significant milestone for a stock's growth, as they essentially reset the stock price for future growth.
Research conducted by Bank of America suggests that stocks perform better a year after undergoing a stock dividend. This could be due to the fact that stocks usually perform well during a split, which is typically a result of significant gains, and because companies decide when to split shares only when they're confident in their stock's future performance.
As of now, only one of the "Magnificent Seven" stocks, Meta Platforms (META 0.71%), has never split its shares in its history. Its peers, with the exception of Microsoft, have recently undergone stock splits:
- Apple: 4-for-1 stock split on Aug. 28, 2020
- Nvidia: 10-for-1 stock split on June 7, 2024
- Alphabet: 20-for-1 stock split on July 15, 2022
- Amazon: 20-for-1 stock split on June 3, 2022
- Tesla: 3-for-1 stock split on Aug. 25, 2022
Therefore, the question arises: Will Meta Platforms join its peers in splitting its stock? Let's consider the arguments for doing so.
Why Meta Platforms might consider a stock split
Meta's share price has reached a considerable height, currently hovering around $600 per share, placing it among the most expensive stocks in the S&P 500 index.
Lately, the stock has been experiencing substantial growth, indicating that its upward trend is likely to persist. In its latest quarter, Meta reported robust growth, with revenue soaring by 19% to $40.6 billion, and operating income increasing by 26% to $17.4 billion, despite continued losses in its reality labs division.
Moreover, Meta's stock is reasonably priced, boasting a price-to-earnings ratio of 28, suggesting that it has room to grow further. Additionally, Meta has demonstrated its commitment to its shareholders by initiating a dividend and using excess capital to purchase back stock.
While Meta hasn't declared any plans to split its stock, doing so would likely satisfy its shareholders.
Furthermore, a stock split could help the company gain entry into the Dow Jones Industrial Average. Currently, its high share price may prevent it from being added to the index, which is price-weighted, and typically includes stocks with share prices ranging between $50 and $500.
Will Meta split its stock?
The primary obstacle for Meta Platforms in considering a stock split is the perspective of its CEO, Mark Zuckerberg. CEOs with a long-term vision sometimes choose not to split their shares, as they believe it attracts investors who aren't aligned with the long-term goals of the business.
For example, Amazon delayed its stock split for over 20 years due to Jeff Bezos' long-term philosophy, and he didn't believe a stock split was consistent with his vision. Similarly, Berkshire Hathaway has never split its Class A stock, even though it offers Class B shares, which trade at a more reasonable share price.
Investors should keep a close eye on Mark Zuckerberg's comments during upcoming earnings calls and other appearances, as they may shed light on his long-term strategy and thoughts on stock splits.
At present, a stock split doesn't seem imminent, but circumstances could change rapidly. If the stock continues to rise, demands for a stock split may escalate in the future.
Investors might consider using the potential gains from a stock split as an opportunity for further investing in the financial market. Additionally, a stock split could make Meta Platforms' shares more accessible to a wider range of retail investors who may not be able to afford the high share price currently.
