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"Stock splitting seems to have become a trend for American technology companies today."
The source of this article is "Alphabet List" (ID: wujicaijing), which is reprinted by Tencent Venture with permission.
Text/Gundam
Editor/Yan Fei
Tesla founder Elon Musk likes to post news through personal social media, and his company continues that "tradition" today. The world's most valuable car brand announced its upcoming stock split via a brief Tweet on March 28.
"Tesla will ask shareholders to vote at this year's shareholders' meeting to approve the authorization of additional shares for the purpose of the share split."
The brief statement does not disclose the details of the share split plan, including the proportion and timing of the share split.
In the past, Tesla's annual shareholder meeting was often held in the summer, but in the past two years, due to the impact of the epidemic, the shareholders' meeting was postponed to the autumn, and last year's meeting was held on October 7. Tesla has yet to announce a date for this year's shareholders' meeting.
Subsequently, Tesla submitted relevant documents to the SEC about the split, saying that the company's board of directors had given the "green light" to the split plan, and the split would be carried out in the form of distributing additional shares to shareholders, but still did not answer the above questions, causing Bloomberg to ridicule in the report, "The document raises as many questions as the answers."
Tesla's stock split is less than two years since the last time. In August 2020, Tesla split its shares in the ratio of 1 share to 5 shares. After the split, Tesla's stock price has increased by about 300%.
Tesla's stock price has risen more than 80% over the past year, standing on the $1,000 mark. This has significantly pushed up the threshold for small and medium-sized investors to open positions. Some analysts believe that Tesla's stock split timing is just right.
"A joint venture or split is a common equity disposal method under the mature capital market and company law system," Shen Meng, executive director of Chanson Capital, told alphabet list. The high stock price will raise the trading threshold, which is not conducive to maintaining an active trading level and is not conducive to more investors trading, so the company will choose to split shares to reduce the stock price.
Theoretically, the split does not affect the value of the company, as it is only a change in the structure of the share capital and does not involve a substantial change. For example, investors previously held 1 share of Tesla stock of $1,000, and after 1 split of 5, it became 5 shares of Tesla stock of $200, and the value of the shares held did not change in the slightest.
However, historically, the increase in the size and frequency of investors after the company's stock split has often led to a short-term increase in stock prices. For example, after Apple announced its stock split in July 2020, its stock price rose by 30% in one month. After Tesla's stock split in August of the same year, it soared more than 60% in less than a month, and rose as much as 743% during the year.
"The stock split gives people more opportunities to participate, and as a result, the stock price is pushed up by the 'buy gas'." Shen Meng said.
Tesla's stock price has not performed as brightly since the beginning of the year, and has been on the downward spiral, falling below $800 at one point in mid-March. But after the announcement of the stock split, Tesla's stock price rose sharply.
In the US stock trading on March 28, Tesla's stock price was in a slight decline after the opening, but after the announcement of the stock split, Tesla's stock price turned straight up, closing up 8.03% to $1091.94; the market value increased by more than $80 billion, even more than the total market value of Ford Motor.
Just by releasing the news of the stock split, Tesla has caused the stock price to rise sharply in the absence of changes in the company's fundamentals. Musk, who holds a large number of stocks, is not surprisingly one of the biggest beneficiaries.
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At the moment, Musk holds about 23% of Tesla's shares. The volatility of Tesla's stock price is directly related to Musk's wealth level.
In August 2020, Tesla conducted its first stock split, and the stock price rose by 12.57% in the first trading day after the stock split, with a market value of more than $450 billion.
The surge in stock prices helped Musk's net worth soar by $11.7 billion to $115.4 billion in a single day, squeezing Zuckerberg into the world's third-richest man. At the beginning of the year, his personal net worth was less than $30 billion.
Unlike Cook, who holds less than 1% of Apple's shares and is paid mostly from base salary and equity incentives, Musk's personal wealth is completely tied to Tesla's stock price, and his CEO position does not have any salary and bonuses, and all the returns come from his Tesla stock.
The result comes from a ten-year compensation plan that Tesla customized for Musk in 2018. The plan is a bit like a VAM deal, Musk's apparent salary is zero, and he can only get the corresponding stock incentive after leading Tesla to one grand goal after another, otherwise he will get nothing.
Musk
But thanks to Tesla's eye-catching performance over the past few years — Tesla's stock price has risen by a staggering 1876% over the past five years — Musk reached one of the final goals of his compensation plan seven years ahead of schedule in 2021 (a market capitalization of $650 billion). He thus became probably the person who received the most equity incentives in the short term in the history of capital, and was actually the CEO who received the most compensation.
After Tesla announced that it would split its shares for the second time, it was almost foreseeable that its stock price would inevitably rise.
People attribute the rise to the emotional effects of the influx of retail investors. After announcing the split, Tesla was the most bought stock among customers of financial services firm Fidelity yesterday.
Analysts on Wall Street have expressed concern about the irrational rise. Bloomberg quoted Morgan Stanley analysts in the report as saying, "We can't fundamentally explain how the stock split immediately increased Tesla's market capitalization by nearly 1.5 times compared to the market capitalization of General Motors, or the market capitalization of Volkswagen as a whole." ”
Shen Meng also told the alphabet list that whether tesla's stock price rises after the split should depend on the trend of the global new energy vehicle market and the performance of the US stock market, which has nothing to do with whether the shares are split or not.
Some analysts have directly called Musk a "master of market psychology" to illustrate the boost to The stock price of Tesla's stock split.
Tiger Securities said in a brief review of Tesla's stock split that in Tesla's two recent votes (Tesla asked shareholders to vote on whether to split shares, and Musk asked netizens to vote on whether he would sell shares), "Musk has pinched people's hearts to death."
However, because Tesla has not yet determined the date of the shareholders' meeting, and the real implementation time of its stock split has not been determined, Tiger Securities told the alphabet list that considering that the time from Tesla's real stock split will be longer, Tesla's stock price will be more repetitive during this time.
The news of Tesla's announcement of the stock split also diluted some of the company's recent negative news.
This week, Tesla's Shanghai factory was shut down for 4 days due to the epidemic, which is not good news for Tesla, which has been trapped in insufficient capacity and has a long delivery date, and Tesla's domestic orders generally need to wait 3 to 6 months. Previously, Tesla also stopped work for two days in the middle of this month due to the epidemic. Tesla responded to the outside world that Tesla strictly implements various epidemic prevention and control requirements and arranges work at any time according to the government's epidemic prevention policy.
Some time ago, the SEC (U.S. Securities and Exchange Commission) required Musk to comply with the settlement agreement reached with him in 2018, and Tesla lawyers must review some of Musk's tweets in advance. Musk said he was forced to sign a settlement agreement and appealed to the court.
Musk's physical condition also has minor problems. Last week, he said he appeared to have COVID-19, but had few symptoms. Previously, Musk had been diagnosed with COVID-19 once after visiting Sweden in November 2020.
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Stock splits seem to have become a trend for U.S. tech companies today.
In February, Alphabet, Google's parent company, which has not had a split for eight years, announced a 1-for-20 split plan, which is expected to be completed on July 15 this year, and shareholders still registered as of July 1 will receive 19 new shares. At the time, Google's stock price was about $2753.
Less than a month later, Amazon also announced a 1-20 share split, the company's first stock split since 1999, and the stock split is scheduled to be completed on June 6 this year. It also announced a share repurchase program of up to $10 billion at the same time.
Coupled with Apple, which split its shares for the fifth time in 2020, and Tesla, which recently announced its second stock split, only Microsoft has not carried out a stock split in recent years among the 5 trillion-dollar companies in the United States. Microsoft has carried out 9 stock splits in history, and its current stock price is around $315, and the possibility of a recent stock split is unlikely.
The last U.S. stock market divergence trend dates back to the 1990s. At that time, the number of companies with 500 shares of S&P exceeded 100 per year, and it has never reached such a scale since the new century. In 2019, only 2 of the S&P 500 constituent companies split their shares.
"The wave of stock splits in the late 1990s was an overall rally driven by the dot-com bubble. With the bursting of the Internet bubble, the stock price has fallen sharply, and there is no longer a premise for stock splitting," Shen Meng explained to the alphabet list.
However, after the outbreak of the epidemic, the US capital market ushered in a strong rebound due to ultra-loose monetary policy, and the stock prices of technology companies also hit record highs, making stock splitting popular again. In 2020, 7 companies with 500 shares of S&P announced their share splits.
However, there are also those who are firmly opposed to the stock split. Buffett's Berkshire Hathaway Company has never split a Class A stock, and its share price is as high as $530,000 per share. Buffett uses high stock prices as one of the thresholds for him to select investors, which he believes can attract investment-oriented and long-term shareholders rather than short-term return-seeking investors.
In the history of Chinese stocks, there are not many companies that have split their shares, and most of them are concentrated during the listing period in Hong Kong in recent years. For example, Alibaba announced a 1-for-8 share split plan before returning to Hong Kong in 2019, and Baidu announced a 1-for-80 share split plan before returning to Hong Kong last year, most of which took into account the exchange rate between US stocks and Hong Kong stocks, as well as reducing the investment threshold for Hong Kong stock investors.
Ctrip is probably the company with the largest number of shares in China, having undergone four stock splits in history, the most recent of which was in 2015, when Ctrip had just acquired Qunar.
Amazon and Google both ushered in a rise in stock prices after the release of the stock split news. Among them, Amazon announced that after the stock split, it rose 10.2% after hours, and its stock price has risen by more than 20% so far, recovering Amazon's decline in the past 2 months.
Tesla's tweet announcing the stock split was the hottest in the company's recent history, with a large number of retail investors expressing support in the comments section. In addition to Tesla, another company owned by Musk, SpaceX, also broke the news of the stock split last month. SpaceX is in the process of its first stock split and plans to split its common stock on a 1-to-10 ratio. SpaceX's market capitalization has exceeded $100 billion.
Resources:
《Tesla, Amazon Stock Splits Trigger Retail Stampede》彭博社
"Tesla will ask shareholders to approve the share split plan," Wall Street Journal
"Too Good Performance, Musk's 'Ten-Year Compensation Plan' Reached Seven Years Ahead of Schedule," Fortune Magazine
"Tesla's "stock split" reaction: How is Musk worth more than 100 billion US dollars? Car prophet
"Tesla Announces Second Stock Split Plan Since 2020: Stock Price Rises 8%" Sina Technology
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