On Thursday 07/30/2020, Apple (NASDAQ: AAPL) reported quarterly earnings for the Fiscal third quarter of 2020.
In other words, they shared with investors (and the public in general) how the business performed from April through June of this year.
Here are some of the highlights:
- Over the past 3 months, the company generated revenue (sales) of $59.7 billion, 11% higher than same quarter last year. Revenue is the money made from selling their products and services.
- Net Income (profits) came in at $11.25 billion, 12% higher than the same quarter last year. This is the money that the business has leftover from sales after expenses.
Besides these outstanding results, something that caught everyone’s attention is the upcoming 4:1 split of the stock. As documented in the official quarterly report:
The Board of Directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
Source: Apple’s Investors Relations Page
After this announcement was made, I received tons of questions from the Girl$ on The Money community about what this means.
Here are my answers in plain English:
What does it mean for Apple to do a 4:1 Split?
I will explain this using a simple example.
Let’s say that you currently have 1 share of Apple sitting in your investment account worth $400.
After the 4:1 split happens- the morning of 08/31/2020, you will wake up to the following:
4 shares of apple worth $100 each.
As you can see, the core value of your investment does not change. You would still own $400 worth of apple regardless of how you slice it.
To make it more clear, here’s another example:
Let’s say that you currently have 2 shares of Apple sitting in your investment account, each worth $400. In total, your investment in Apple is currently worth $800.
After the split, you would wake up to having 8 shares worth $100 each.
Again, the total value of your investment remains the same, your current investment is just being split into 4 pieces.
If I own Apple stock, do I need to do anything?
If you already own Apple stock, there’s nothing for you to do. You’ll just notice the change in your investment account once the split goes through.
Why are they doing this?
The company did not specify. However, one of the main reasons why *some* publicly traded companies decide to do this is because the price of the stock has gotten relatively expensive. And so, by doing the split, they give access to more people to invest in the company.
This is also a way for publicly traded companies to raise money from new investors or just people that decide to buy more shares as a result of the split.
Does this mean I get “free” stock?
Apple is not giving away any “free” stock to anyone. I noticed some comments on social media about people misinterpreting this to mean that for every one share you have Apple would “give out” 3 free shares. That’s the wrong way to look at this. They aren’t giving out anything for free.
Again, if you are a current shareholder, the total value of your investment does not change. It would just show up differently in your investment account.
See my examples above to understand what I mean here.
If I am interested in buying the stock, should I wait until after the split?
First of all, you should never invest in a company “just because” they are doing a split. That shouldn’t be your one and only reason for Apple or any other stock.
With that said, if Apple is a stock you’ve been waiting to buy for many years and felt the price was “too high”, the split can present a great opportunity to grab some shares.
However, it really doesn’t matter if you get them now or wait until after the split.
If you grab one share now at about $400 (before the split), your investment will just transform into 4 shares worth $100 each after the split. You would still have $400 worth of Apple regardless.
However, if you planned to get less than 4 shares and perhaps just want to invest $300 worth of your money in Apple, then waiting until after the split is probably ideal. That way, you can just get 2-3 shares at the price that is shown after the split goes through.
Let me know if this makes sense!
And that’s all folks! Thank you for reading. If you enjoyed this post, click “like” and/or leave a comment. Also, if you have any questions let me know below.
You can always reach me at firstname.lastname@example.org.
Cheers to HEALTH and Profits,
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