Stock-Split Watch: Is Meta Platforms Next?

Stock splits get a lot of attention from investors, and it's understandable why.

While they don't do anything to fundamentally change the value of the stock, they do lower the share price, which makes the stock more attractive to retail investors. They also act as a milestone for a stock's growth as they effectively reset the stock price for further growth.

There's also some evidence that stocks outperform over the year following the stock split, according to research from Bank of America. That may be because stocks tend to be doing well when they split their shares as it's a result of significant gains, and because companies choose when to split their shares. It's unlikely management would issue a split if it thought there were a chance of a significant pullback in the stock.

Meta Platforms (META -4.00%) is now the only "Magnificent Seven" stock to never have done a stock split in its history, and its peers except for Microsoft have all done one in recent years. Those include:

Apple: 4-for-1 stock split on Aug. 28, 2020

Nvidia: 10-for-1 stock split on June 7, 2024

Alphabet: 20-for-1 stock split on July 15, 2022

Amazon: 20-for-1 stock split on June 3, 2022

Tesla: 3-for-1 stock split on Aug. 25, 2022

So will Meta Platforms follow its peers and split its stock? Let's take a look at the case for doing so.

Why a stock split could be in Meta's future

Meta's share price is now approaching $600 a share, which gives it one of the highest share prices of any stock on the S&P 500 index.

The stock has also been posting impressive gains lately, indicating that it's likely to continue moving higher. Meta just delivered another quarter of strong growth, with revenue up 19% to $40.6 billion, and operating income jumped 26% to $17.4 billion, showing the company continues to expand its operating margin even as it posts wide losses in its reality labs division.

The stock is also reasonably priced at a price-to-earnings ratio of 28, so there's good reason to believe it can continue to move higher from here, especially at the pace it's growing. Additionally, Meta has shown investors that it is adopting a more shareholder-friendly approach as it recently initiated a dividend and it's been using excess capital to buy back stock.

The company hasn't given any indication that it would split its stock, but doing so would likely please shareholders.

Finally, a stock split would also help the company gain admission to the Dow Jones Industrial Average; its current share price is likely too high for it to be added since the index is price-weighted, and most stocks on the index have share prices between $50 and $500.

Will Meta split its stock?

The biggest question about a stock split for Meta Platforms is how CEO Mark Zuckerberg feels about such a move. CEOs with a long-term mindset sometimes choose not to split their shares as they think it attracts a kind of investor who isn't aligned with the long-term vision of the business.

For example, Amazon didn't split its stock for more than 20 years, in part because of Jeff Bezos' long-term philosophy, and he didn't think a stock split was aligned with that. Similarly, Berkshire Hathaway has never split its Class A stock, though it offers Class B shares, which trade at a more reasonable share price.

Investors should listen closely to comments from Zuckerberg on upcoming earnings calls and other appearances about his long-term approach and any thoughts about stock splits.

For now, a split doesn't look imminent, but that could change quickly. If the stock continues to rise, calls for a stock split could grow later on.