---
title: Why do companies do stock splits?
description: Breaking down why the biggest players in tech are making their stock cheaper.
---

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# [Why do companies do stock splits?](https://hs-sbup.thehustle.co/news/04132022-stock-splits)

 Written by [Rob Litterst](https://hs-sbup.thehustle.co/news/author/rob-litterst) | Apr 13, 2022 5:49:53 AM

On Monday, Shopify[ announced](https://www.cnbc.com/2022/04/11/shopify-plans-a-10-for-1-stock-split-eyes-founder-share-to-protect-ceos-voting-power.html) its plans for a 10-for-1 stock split to make share ownership more accessible. So, uh, what’s that?

For starters, the financial maneuver [doesn’t change](https://money.howstuffworks.com/stock-split.htm) the market capitalization of a company — just its number of outstanding shares.

For example, say you own one share of a company’s stock at $1k per share. A 5-to-1 stock split would give you 5 shares at $200 per share. Math!

But why are companies like Tesla, Amazon, and Alphabet all doing it?

#### **Historically…**

… companies have issued stock splits to increase trading volume when their stock price has gotten too high. Examples include:

- **Apple **issuing a 4-to-1 split in 2020 ($500 to $125), leading to a spike in trading among retail investors (AKA regular people).
- **Berkshire Hathaway **issuing a 50-to-1 split for its Class B shares in 2010, resulting in a [boost in liquidity](https://www.benzinga.com/125571/berkshire-hathaway-b-brk-b-splits-its-way-to-the-s-p500) (trading shares became cheaper and faster). This boost made it eligible for the S&P 500.

But these days, trading platforms like Robinhood allow investors to buy **fractional shares** of a stock (for example, ¼ of a share), making share price less important.

With that in mind, Virginia Tech finance professor Derek Klock says stock splits are a psychological play — a way for a company to tell the market it expects its stock to keep going up.

#### **Warren Buffett once said…**

… stock splits are irrelevant, comparing the move to [cutting a pie](https://www.gurufocus.com/news/73513/berkshire-hathaway-stock-split-shows-warren-buffetts-flexibility) into more pieces. But the data seems to prove it works:

- Tesla, Google, and Amazon all saw net purchases [double](https://qz.com/2147995/why-tesla-google-and-amazon-want-to-do-stock-splits/) after announcing splits.
- **Plus**, research from [Nasdaq](https://www.nasdaq.com/articles/3-compelling-reasons-for-companies-to-split-stocks-2019-09-12) found that simply announcing a split leads to a 2.5% increase in share price, and companies that issue splits beat the market by ~5% in one year.

**Bonus:** Here’s a boppy old-school [stock rap](https://www.youtube.com/watch?v=hjuMlolaKo4). *“A company is kinda like a pie (pie!), a stock is a slice that you buy (buy!).”*

[View full post](https://hs-sbup.thehustle.co/news/04132022-stock-splits)

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