Stock-Split Watch: Are Meta Platforms Next?

Parent of Facebook and Instagram Meta platforms (META -0.19%) he stood up. The stock is trading at all-time highs after rising 91% over the past 52 weeks. It also has a high share price at $565 per share. Is This “Magnificent 7” Stock Heading For A Stock Split In The Near Future?

What’s the point of a stock split anyway?

Let’s start with the basics. A stock split simply changes the number of shares that represent a company’s total market value. 10 million shares worth $100 each add up to a market cap of $1 billion. 100 million shares at $10 per share results in the same market capitalization. The ratio change neither adds nor destroys value for existing shareholders.

That said, stock splits aren’t completely useless. A lower share price can make stocks more accessible to investors with modest budgets, especially if they don’t have a brokerage account that allows them to buy or sell a fraction of a full share. The price per share can also make a difference for stock options, where a standard contract is the right to buy or sell 100 shares at a certain price.

That adds up in a hurry when stock prices are high. For example, an “in-the-money” call option contract on Meta stock is worth about $56,500 today. That’s not pocket change for most people, and enough to make large corporations think twice about stock option-based compensation policies.

Peculiarities of Meta’s stock-based compensation plan

The meta makes extensive use of share-based compensation. The company calls it stock-based compensation in its financial filings, worth $8.2 billion in the first half of 2024. That represents 17.5 percent of Meta’s total operating costs, up from 16.2 percent in the first half of 2023. So Meta should manage its inventory. price to control its stock-based compensation expenses, right? It’s hard to give fair wages to every worker when a contract with a single option is worth more than $50,000 after all.

But Meta avoided this problem by distributing stock-based compensation in a different way. In addition to their regular cash salaries, Meta employees are paid in restricted stock units (RSUs). These are single shares, not large options contracts. Over time, the units convert into common stock that can be sold on the open market.

So the share-based compensation program will not force Meta’s hand to split the shares. The company still has fairly granular control over its total wages at these share prices.

Should the Meta Track a Dow Jones Member?

I could also argue that Meta should split their stock if they ever want to become part of the prestigious Dow Jones Industrial Average (^DJI 0.20%) market index. It is a price-weighted index that gives high-priced components a greater influence on the total value of the index.

Current prices among the 30 Dow components range from $22 to $574 per share. Throwing Meta Platforms into that mix would instantly fit the most influential piece of the market puzzle, accounting for about 8% of the index score.

But the tech sector already has plenty of representation in this index, including Magnificent 7 stocks Apple and Microsoft. Adding another tech heavyweight like Meta to that list would probably lean too much in the direction of Silicon Valley.

So the Dow doesn’t seem like a reasonable motivation for splitting Meta stock either.

Final Verdict: The meta probably won’t split its stock anytime soon

Meta Platforms is not desperate to join the Dow Jones. A lower stock price wouldn’t grease the gears of its stock-based compensation program. A stock split could boost the stock very short, as these moves generally indicate that the board expects stock prices to rise further. But I’ve already mentioned that stocks are rising to record highs and really don’t need an artificial short-term boost from this kind of announcement.

The company might be doing this anyway to keep up with the cool kids and perhaps get a temporary price boost from the media hype. But Meta Platforms has no serious reason to take this step, and I’m not holding my breath for that press release. The company hasn’t split its stock after 14 years on the public markets, and I don’t see why that should change in 2024.