Will FB Stock Split in 2017?
Many investors think Facebook Inc (NASDAQ:FB) is unaffordable at $137.00 per share. The social media stock seems out of reach. A FB stock split in 2017 would solve that problem. There is no fixed timeline on the Facebook stock split date in 2017, but investors should stay hopeful.
The Board of Directors approved a 3-for-1 stock split in April 2014.
Facebook has yet to pull the trigger on this plan (for reasons unknown). But the share price is breaking new ground every few months, making me optimistic for a FB stock split in 2017.
Some of you may be thinking: The price of Facebook stock doesn’t matter; I only care about the return. Did I make 10%, 100%, 200%? Capital gains don’t change based on nominal prices.
This is technically true. Paying $13.70 for ten shares of a company is the same as paying $137.00 for one share. But retail investors don’t see it that way and I can understand why.
Unlike professional money managers, most of us start off with small sums of money.
We are trading our own fortunes. This means we take risk more seriously. Every new trade is an opportunity to learn something new about investing. What works, what doesn’t. We need the freedom and flexibility to shift our holdings with ease.
Imagine a young trader making his first move on the stock market. He has $1,000 to invest.
He knows a few Wall Street types who “understand” the stock market, so he asks them for advice. One tells him that Amazon.com, Inc. (NASDAQ:AMZN) is a spectacular stock. The others agree. Amazon, they tell him, is going to surge by triple-digits in the next year.
OK, he decides, I’ll put half of my money in AMZN stock.
Except that he can’t. The going rate for Amazon stock is $852.05. Which means he would need to put 85% of his wealth into a single company to own its shares. That is a direct consequence of the costliness of Amazon’s share price.
I know that’s an extreme example. But it illustrates a simple point. Namely, that share prices can get too expensive. Wall Street elites can laugh at that all they want, but corporate executives seem to understand this basic concept. That’s why stock splits exist.
If nothing else, they provide liquidity to a company’s shares. So don’t be surprised if Facebook acts on its stock split plan this year; the Board of Directors gave it authority long ago.
Facebook Stock Split History
The upcoming stock split would be Facebook’s first as a public company. In essentials, the stock has been unchanged since its initial public offering in 2012. Its pre-IPO record is quite different.
There were three different stock splits back then.
FACEBOOK STOCK SPLIT HISTORY
Stock Split Date
As you can see, Facebook expanded its share count several times in the past.
Why Facebook Will Split Its Stock
Facebook wants to introduce a new class of shares that differ from the ones shareholders are giving up. Most investors will hold Class C shares of FB stock after the split.
What is the difference, you ask? Simple: Class C shares have no voting rights.
Rather than diluting the float with identical versions of Facebook stock, Mark Zuckerberg is creating a class system. He wants to retain the majority of voting rights in his company, even if he sells off a majority of his ownership.
Put another way, this split would make Zuckerberg the “dictator in perpetuum” at Facebook.
Facebook’s general counsel, Colin Stretch, explained the Board’s reasoning in a letter to the U.S. Securities & Exchange Commission:
“A large part of Facebook’s success has stemmed from the leadership, creative vision and management of Mark Zuckerberg, and that the company’s future success will depend on Mark’s continued leadership.” (Source: “Preserving Founder-Led Structure to Focus on the Long Term,” U.S. Securities & Exchange Commission, last accessed March 2, 2017.)
There were several justifications in the letter, written mostly in “legal-ese.” I’ve translated them into plain English below.
- We’re lost without Mark Zuckerberg. (I suppose that’s true.)
- Mark needs this security to stay at the company. (Does he really though?)
- FB stock could plummet if he leaves a power vacuum. (Fair point.)
- At least this will stop others from vote dilution in the future. (What?)
It doesn’t really matter whether or not you find these arguments persuasive. Shareholders already approved the plan. In doing so, they voted away their right to vote.
But that is neither here nor there. It is done.
All that remains is for Facebook to put the plan into motion.
How Stock Split Will Affect FB Stock Price
Now let’s get down to the important stuff.
How is this going to affect shareholders? Does it impact our FB stock prediction for 2017? Is Facebook stock a buy? These questions need answering.
So let’s try to address them in order:
1. How is this going to affect shareholders?
Stock splits only start rallies. They do not sustain a long-term trend. Facebook stock could see a minor bump post-split, but investors shouldn’t depend on it too much. The share price requires much more fuel than that.
2. Does it impact our FB stock prediction for 2017?
The possibility of a stock split only improves Facebook’s outlook. Mobile advertising spending is growing, and since Facebook dominates the mobile market, it is likely to capture most of those gains. This could also be the perfect time to split FB stock because the company is also trying to monetize “WhatsApp” and “Messenger.” Talk about a catalyst!
3. Is Facebook stock a buy?
I am extremely bullish on FB stock. Under normal circumstances I would steer clear of a CEO with dictatorial tendencies, but Mark Zuckerberg is a special case. He is the reason for Facebook’s success. You only need to look at Facebook stock’s performance over the last five years to see how superior he is to the majority of other CEOs.
Chart courtesy of StockCharts.com
Over the last five years, the data shows that you could have doubled your money with a bet on the Nasdaq 100 Index. An exchange-traded fund that tracks the index would have scored you triple-digit gains. But Facebook far outstripped those returns. It more than tripled.
Despite his meagre age, Zuckerberg is a proven CEO. He’s made a lot of money for a lot of people and I don’t think he’s in any mood to slow down. So my FB stock prediction remains as upbeat as ever. I think there is tremendous upside yet unseen.
Facebook is likely to split its stock in 2017. The fact that FB stock is hitting record highs—and the fact that Mark Zuckerberg wants complete control—explains why it could happen this year. But don’t get too enthusiastic about it.
It’s important to remember that stock splits are a one-time adrenaline shot. They are not a steady tailwind, but rather a momentary gust of wind. I would personally focus on the million other reasons to be bullish on FB stock.
The stellar revenue growth, the jaw-dropping profits, the knack of acquiring hot startups. There are so many positive aspects to this stock. Even if you look at the stranger things Facebook does (like its plan to launch a constellation of drones to beam down WiFi to unconnected places in the world), you must realize there are better reasons to like this stock.
That said, it’s probably better to own Facebook stock before the stock split than after.