Facebook and Instagram parents Meta-platforms (NASDAQ:META) The stock is trading at an all-time high after rising 91% over the past 52 weeks. It also has a whopping share price of $565 per share. Is this Magnificent 7 stock headed for a stock split in the near future?
What is the point of a stock split anyway?
Let’s start with the basics. A stock split simply changes the number of shares that represent the total market value of a company. 10 million shares at $100 each give a market cap of $1 billion. 100 million shares at $10 each give the same market cap. Changing the ratio neither increases nor decreases value for existing shareholders.
However, stock splits are not completely pointless. A lower share price can make the stock more accessible to investors with modest budgets, especially if they don’t have a brokerage account that supports buying or selling a fraction of a whole share. The price per share can also make a difference in stock options, where a standard contract represents the right to buy or sell 100 shares at a specific price.
That adds up quickly when stock prices are high. For example, an “in the money” call option contract for Meta stock is worth about $56,500 today. That’s not pocket change for most people and is enough to make big companies think twice about compensation policies based on stock options.
Features of Meta’s equity-based compensation plan
Meta uses stock-based compensation extensively. The company describes it in its financial filings as stock-based compensation, which will total $8.2 billion in the first half of 2024. That’s 17.5% of Meta’s total operating expenses, up from 16.2% in the first half of 2023. So Meta should manage its stock price to keep its stock-based compensation costs under control, right? After all, it’s difficult to pay every worker a fair wage when a single option contract is worth more than $50,000.
Meta, however, has dodged this problem by paying out stock-based compensation in a different way. In addition to their normal cash salary, Meta employees receive restricted stock units (RSUs). These are individual shares, not large option contracts. Over time, the units convert into regular stock that can be sold on the open market.
So the stock-based compensation program won’t force Meta to split the stock. The company still has pretty tight control over its total pay at these stock prices.
Should Meta seek Dow Jones membership?
I could also argue that Meta should split its shares if it ever becomes part of the prestigious Dow Jones Industrial Average (DJINDICES: ^DJI) Market index. It is a price-weighted index in which high-priced components have a greater influence on the overall index value.
Current prices of the 30 Dow components range from $22 to $574 per share. Removing meta platforms from the mix would immediately make them the most influential piece of this market puzzle, accounting for about 8% of the index’s value.
But the technology sector is already well represented in this index, including the other Magnificent 7 stocks Apple And MicrosoftAdding another technology heavyweight like Meta to this list would probably shift the list too far towards Silicon Valley.
Therefore, the Dow does not seem to be a reasonable reason for a split of the meta stocks.
Final verdict: Meta is unlikely to split its shares anytime soon
Meta Platforms is not desperate to join the Dow Jones index. A lower share price would not boost the stock-based compensation program. A stock split might give the stock a short-term boost, as these moves generally indicate that the board expects the stock price to rise even further. But I mentioned earlier that the stock is headed for record highs and really doesn’t need an artificial short-term boost from such announcements.
The company might do it anyway to keep up with the cool kids and perhaps get a temporary price boost from the resulting media coverage. But Meta Platforms has no serious reasons to make this move, and I don’t expect that press release. The company has yet to split its stock after 14 years on the public markets, and I see no reason why that would change in 2024.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anders Bylund does not own any of the stocks mentioned. The Motley Fool owns and recommends Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Stock Split Watch: Are Meta Platforms Next? was originally published by The Motley Fool
