Stock-Split Watch: Could Meta Platforms Be Next?

Meta Platforms (NASDAQ: META), the parent company of Facebook and Instagram, has seen its stock soar by 91% over the past year, reaching an all-time high of $565 per share. As part of the "Magnificent 7" tech stocks, some are wondering whether a stock split might be in Meta's future.

What’s the Purpose of a Stock Split? A stock split increases the number of shares in circulation without changing a company's overall market value. For instance, a company with 10 million shares priced at $100 each would still have the same market capitalization if it split those shares to 100 million, with each share now worth $10. While this doesn’t affect the total value, it does make individual shares more affordable for retail investors who might otherwise find the price prohibitive. This could also impact stock options, which allow investors to buy or sell 100 shares at a given price. High stock prices can make these options contracts quite expensive — for Meta, an in-the-money call option is currently worth about $56,500.

Meta’s Approach to Stock-Based Compensation Meta heavily relies on stock-based compensation, with over $8.2 billion in stock-related expenses recorded in the first half of 2024, accounting for 17.5% of its operating costs. However, rather than large option contracts, Meta pays its employees using restricted stock units (RSUs), which convert into full shares over time. This method gives Meta more control over employee compensation without needing to split its stock.

Could Meta Join the Dow Jones? Meta could consider splitting its stock to become a candidate for the Dow Jones Industrial Average (DJIA). The DJIA is a price-weighted index, meaning companies with higher share prices have more influence. Currently, the stock prices of the 30 DJIA components range from $22 to $574 per share, and adding Meta at its current price would give it outsized sway. However, with plenty of tech representation in the DJIA already, including giants like Apple and Microsoft, it’s unlikely Meta would split its stock solely to join the index.

Why Meta May Not Split Soon In reality, Meta is under no pressure to split its stock. Its stock-based compensation plan is manageable, and the company doesn’t seem eager to join the DJIA. While a split might temporarily boost its share price, Meta’s strong performance suggests it doesn’t need a split to continue thriving. Historically, Meta hasn’t split its stock since it went public 14 years ago, and there’s little reason to believe this will change in 2024.