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Apple announces two-for-one stock split

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By LC Angell

Contributing Editor
Published: Friday, February 11, 2005
News Categories: Apple

Apple on Friday announced that its board of directors has approved a two-for-one stock split that will increase the number of authorized common shares to 1.8 billion from 900 million. Apple said that each shareholder at the close of business on Feb. 18, 2005 will receive one additional share of stock for every share they own. Trading will begin on a split-adjusted basis on Feb. 28, 2005.

Shares of Apple have nearly quadrupled in value over the last year on the success of the iPod. Last month, the company easily beat analysts’ expectations with its first quarter financial results. Apple posted a net profit of $295 million, or 70 cents a share, compared to income of $63 million, or 17 cents per share, in the prior year. Analysts surveyed by Thomson First Call had expected the company to earn 49 cents a share.

Apple stock closed Thursday’s session down 38 cents at $78.36. It reached a 52-week high of $81.99 on Wednesday.

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Comments

1

Sweet!  Glad I got my stock back when it was around $20/share!

Posted by kendals on February 11, 2005 at 8:50 AM (PDT)

2

cool! I have quite a bit already

Posted by Carmen in NYC on February 11, 2005 at 10:08 AM (PDT)

3

i am guessing this news is why it jumped 2$

Posted by Carmen in NYC on February 11, 2005 at 10:21 AM (PDT)

4

I’ve got quite a few shares as well (even though I wish I bought them when they were at around 20$ per share).

Can anyone tell me why would a company want to do a Stock Split ?

And, is it good for the long run ?

Thanks.

Posted by DaMn21 on February 11, 2005 at 11:46 AM (PDT)

5

Anybody know how to contact Demosthenes?  I’d be interested in his thoughts on this.

Posted by tpmn on February 11, 2005 at 1:24 PM (PDT)

6

In theoretical economics, a stock split *should* have no effect on the valuation of a company.

In reality, people’s valuations change depending on the price level. So Apple’s stock price being so high creates the *perception* that they are expensive, when considered in relation to an earlier price. So some low-end individual investors might hesitate to buy a share. This is of course rationally nonsesne (stock purchases being based on eps, PEG, or technical indicators) but we are not rational creatures.

So the actual effect of a stock split on a momentum stock is usually to introduce some minor bump in the total valuation as people see a sudden new, cheaper price on a stock they’d been wanting for a while but figured it was too expensive. So whule they wouldn’t have pulled the trigger on a $80 price, the $40 looks like a “bargain”.

But it’s usually a little bounce, more of a minor fillip. Companies doing stock buybacks raises stock prices a lot more and is a lot more lucrative for investors. Or given the current tax breaks, announcing large dividend increases or special dividend once-off payments usually give a big bounce.

Posted by Demosthenes on February 11, 2005 at 3:14 PM (PDT)

7

A big reason companies do stock splits is to increase the pool of available buyers. Stocks are typically bought in multiples of 100, so if AAPL is at $80, 100 shares will cost $8000. A 2-for-1 split makes 100 shares $4000. Also, psychologically people look at a $40 stock and think it’s “cheaper” than an $80 stock, even though the fundamentals haven’t changed.

By itself a stock split doesn’t mean anything, but it usually happens after a stock has gone up a lot. Typically though companies don’t do it if they think the stock is going to drop a lot afterwards so it can be seen as a sign of management faith in the future. But there are plenty of examples where they’ve been wrong.

Posted by ches on February 11, 2005 at 3:16 PM (PDT)

8

Hmm so Forrest Gump is going to have even more stock now.

Posted by Xeon-Five on February 12, 2005 at 12:04 PM (PDT)

9

Yeah, I knew the basic theory.  I was wondering about practical ramifications or inferences that might be drawn, and both Demosthenes and Ches touched on these.

Might the split imply that Apple is concerned about keeping the stock attractive to individual investors?  And if that is the case, does it imply anything good or bad about what Apple’s management thinks about the stock’s prospects?  About the company’s prospects?

Posted by tpmn on February 12, 2005 at 3:53 PM (PDT)

10

Who can say? Sometimes splits work well, other times they don’t work. Microsoft’s last split, for example, didn’t do anything to bounce its shares out of its prolgoned rut and left it looking weak.

This article has a good roundup of some of the strategies (eg, buybacks, issue paper, dividends, acquisitions) that public companies can use to modify their share prices:

Apple fired up the repurchase machine in 1999 and 2000, buying more than 5.5 million off of the open market, and then sat on its hands in 2003, when the company’s shares traded for only slightly above cash. You think that $1.1 billion spent in 1999 and 2000 was money well spent for Apple shareholders? Consider this: At the end of 1998, the company had (split-adjusted) 276 million shares, while today it has 408 million. That is a staggering level of dilution, upon which this $1.1 billion expenditure (or $2.69 per share outstanding today) had almost negligible impact.

Posted by Demosthenes on February 13, 2005 at 5:59 PM (PDT)

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