For almost two years, artificial intelligence (AI) has been the top trend powering Wall Street's major stock indexes higher. But over the last nine months, excitement surrounding stock splits has played an equally important role in boosting the value of select market-leading companies.
A stock split gives publicly traded companies the option of superficially adjusting their share price and outstanding share count by the same magnitude. These changes are surface-scratching in the sense that they have no impact on a company's market cap or operating performance.
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Since retail juggernaut Walmart kicked off stock-split euphoria in late January, north of a dozen prominent businesses have announced or completed a split. All but one of these are of the forward-split variety, which is designed to make shares more nominally affordable for retail investors who lack access to fractional-share purchases through their broker.
Today, Oct. 9, marks the arrival of Wall Street's newest stock split, as well as paves the way for another market-leading business to potentially follow in its footsteps.
Wall Street's newest stock-split stock is ready to shine
Nearly five months ago, in mid-May, Japan-based consumer electronics colossus Sony Group(NYSE: SONY)revealed plans to conduct a 5-for-1 forward split. Although the effective date for this split was Oct. 1 in Japan, it was a week later (Oct. 8) for its American depositary receipts (ADRs) listed in the U.S. When trading commences today, Sony's stock should be close to $19 per share, down from $95 per share, where it began the week.
Sony is best-known for its gaming prowess. The company's PlayStation 5 (PS5) is the top-selling ninth-generation gaming console. Although the PS5 has been on retail shelves for almost four years, Sony recently announced plans to increase the price of its top-selling console by 19% in Japan. On top of raising additional revenue, this demonstrates just how commanding of a position Sony holds in the gaming arena.
Furthermore, revenue for the company's PlayStation Plus subscription has been climbing. PlayStation Plus is the multitiered subscription service that allows users to save their gaming data in the cloud, game with their friends, and access exclusive gaming titles. This considerably higher-margin segment is perhaps the best way for Sony to counter the staleness of having its PS5 in stores for nearly four years.
Based on what history tells us, Sony's next-generation console should be available in two to three years. It wouldn't be a surprise to see Sony's stock rally in advance of this release.
But as I pointed out earlier this week, Sony Group is about more than just gaming. Its Imaging and Sensing Solutions (ISS) segment is currently growing by double digits. What's powering this growth in ISS is strong demand for the company's image sensors, which are used in smartphones. Wireless carriers upgrading and expanding the coverage of their networks to support 5G download speeds have encouraged consumers to upgrade their wireless devices.
Sony also has a shareholder-friendly capital-return program. As of Sept. 30, it had completed the repurchase of 14.67 million shares of its common stock for 194.5 billion yen, which equates to roughly $131.5 million U.S. For companies with steady or growing net income, such as Sony, share repurchases can improve earnings per share and make their stock more attractive to investors.
The $64,000 question is: Which company is set to follow in Sony's footsteps and become Wall Street's next stock-split stock?
Image source: Getty Images.
This generational business might be Wall Street's next stock-split stock
While there are quite a few standout businesses that appear ripe for a stock split, including warehouse club Costco Wholesale, software company Adobe, and pharmaceutical giant Eli Lilly, the one that may be the likeliest to walk in Sony's footsteps and announce a split is social media leaderMeta Platforms(NASDAQ: META).
Interestingly enough, Meta is the only member of the "Magnificent Seven" to have never completed a stock split. But with its shares topping $600 on an intra-day basis to open this week, there's a clear reason to make its stock more nominally affordable for everyday investors.
Meta is best-known as the parent of leading social media destinations Facebook, WhatsApp, Instagram, and Facebook Messenger, among other sites. During the June-ended quarter, Meta attracted 3.27 billion people to its apps on a daily basis. No social media company comes remotely close to luring this many daily active users (DAUs).
The advantage of having more than 3.2 billion DAUs is that advertisers will often pay a premium to get their message(s) in front of consumers. Since economic expansions last considerably longer, on average, than recessions, an ad-driven operating model like Meta is usually able to command exceptionally strong ad-pricing power.
But Meta is also gearing up for a future that should feature sustained double-digit growth potential. It's aggressively investing in its AI ambitions by spending in the neighborhood of $10.5 billion to purchase 350,000 AI-graphics processing units (GPUs) from Nvidia. These chips will power Meta's AI-accelerated data centers.
Meanwhile, the company's money-losing Reality Labs segment is building on CEO Mark Zuckerberg's metaverse vision behind the scenes. Meta is positioning itself to be a key on-ramp to the metaverse, although it could take years before the company's investments yields meaningful revenue.
To add, Meta Platforms is sitting on a truly enviable amount of cash. It closed out the midpoint of 2024 with $58.1 billion in cash, cash equivalents, and marketable securities, and is pacing north of $77 billion in net cash generated from its operations for the current year. Meta's balance sheet affords it the luxury of taking risks.
Perhaps no company is primed to become Wall Street's next stock-split stock more than Meta Platforms.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sean Williams has positions in Meta Platforms. The Motley Fool has positions in and recommends Adobe, Costco Wholesale, Meta Platforms, Nvidia, and Walmart. The Motley Fool has a disclosure policy.
