In DataTrek Research's daily newsletter this week, Nicholas Colas said stock splits shouldn't create any value for a company like Tesla. However, he said the case for proceeding with a split anyway comes down to "memes, dreams and themes."
The Case For A Split: First, Tesla's primary means of marketing is CEO Elon Musk's social media activity, and Colas said a lower stock price makes Tesla a more attractive investment for the small, retail investors that follow Musk's every tweet and post. These investors are not only buying shares of Tesla as an investment, it makes them part of the Musk social media meme culture.
Second, a critical part of Tesla's long-term success is its ability to recruit top-tier talent, and sell the "dream" of the company's future potential. Part of that recruiting process is offering equity stakes to employees. Since Alphabet, Inc. GOOG GOOGL and Amazon.com, Inc. AMZN both recently announced stock splits, Colas said Tesla needs to do it as well to ensure it can give recruits as many shares as its big tech competitors.
Finally, Colas said big themes don't need big stock prices. A stock split serves big themes like the democratization of investment opportunity and making a bigger tent for the Musk brand ahead of a SpaceX IPO sometime down the line.
"Will a split make any difference to Tesla’s stock price over time? I doubt it, but here’s the thing: it might help, and it costs the company essentially nothing aside from some incremental listing fees at the NASDAQ," Colas said.
Benzinga's Take: While stock splits don't create any inherent value, investors can expect big tech companies to continue to announce them as long as they keep generating big pops for the stocks.
High-priced stocks like AutoZone, Inc. AZO, Chipotle Mexican Grill, Inc. CMG and Booking Holdings Inc BKNG could be among the next companies to pull the stock split trigger.
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