Several popular businesses have either split their stock or announced stock splits in the past year. Earlier this month, Amazon (AMZN +1.61%) said its stock would undergo a 20-for-1 split in June, pending shareholder approval. And earlier this week, Tesla (TSLA +2.71%) made a similar decision.
In both cases, shareholders should avoid getting too excited. Yes, you could argue that a stock split often triggers an uptick in share price, which could theoretically be monetized if the company uses its stock to raise money or fund an acquisition. But broadly speaking, splitting a stock is like cutting a pizza into more slices: It doesn't matter how many times you cut the pie, the total amount of pizza doesn't change. Similarly, a stock split has no direct impact on corporate revenue, cash flows, or value.
That being said, Amazon and Tesla dominate their respective industries, and both stocks look like smart long-term investments. Here's why.
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1. Amazon
In 1995, Amazon opened its first online bookstore, becoming an e-commerce pioneer. It has since parlayed its first-mover status into a more formidable competitive edge. Fueled by its Prime membership program and expansive logistics network, Amazon will power nearly 40% of U.S. e-commerce sales this year, according to eMarketer. That means it has more market share than the next 14 retailers combined.
Amazon has also come to dominate the cloud computing industry. In 2021, research company Gartner recognized Amazon Web Services (AWS) as the leading provider of cloud infrastructure services, citing a greater ability to execute and a more complete vision than any other vendor. In turn, AWS captured 32% market share in the fourth quarter, according to Canalys, putting the company 11 percentage points ahead of second-place rival Microsoft Azure.
Collectively, Amazon's strong competitive position across multiple industries has translated into impressive financial results. Revenue rose 22% to $470 billion in 2021, and the company posted a profit under generally accepted accounting principles (GAAP) of $64.81 per diluted share, up 55%. But this tech giant still has room to expand its empire.
E-commerce and cloud computing are still quickly growing industries, and Amazon is gaining ground in digital advertising. In fact, it captured 11.6% market share in the U.S. digital ad space last year, up from 7.8% in 2019. That figure is expected to reach 14.6% by 2023. For context, eMarketer believes U.S. digital ad spend will hit $270 billion by 2023, putting Amazon in front of another massive market opportunity. That's why this stock looks like a smart long-term investment.
NASDAQ: TSLA
Key Data Points
2. Tesla
In 2021, Tesla notched another year as the electric vehicle (EV) industry leader, capturing 14.4% market share. Despite widespread semiconductor shortages, the company delivered more than 936,000 vehicles, up 87% from the prior year. Better yet, management's relentless pursuit of manufacturing efficiency continued to pay off, as Tesla's average cost per vehicle fell to $36,000 in the third and fourth quarters, down from $38,000 in the first quarter and $84,000 in 2017. That helped the company post an industry-leading operating margin of 14.6% in Q3, and that figure actually ticked up to 14.7% in Q4.
Several factors fueled that uptick in efficiency, including a tremendous cost advantage in battery pack production and increased output from the factories in Fremont, California, and Shanghai, the latter of which helped localize its China business. Not surprisingly, Tesla delivered another strong financial performance last year. Revenue rose 71% to $52.8 billion and cash from operations surged 93% to $11.5 billion.
Going forward, shareholders have plenty to be excited about. Tesla plans to ramp up production at two new factories in 2022: one in Texas and another in Berlin, the latter of which marks its first production facility in Europe. Tesla is also working to introduce its 4680 battery cells, a new technology that should strengthen its cost advantage in battery pack development. And next year, the company hopes to have new models in production, including the Cybertruck, Semi, and Roadster.
Tesla is also a frontrunner in the race to build a fully self-driving car. In fact, CEO Elon Musk believes that goal is achievable in 2022. If successful, Tesla could then start an autonomous ride-hailing service, which could supercharge its profitability. Case in point: Ark Invest believes autonomous ride-hailing platforms will generate $2 trillion in annual profits by 2030.
Even if that timeline doesn't pan out, Tesla is still a leader in the EV industry, which will only get bigger in the years ahead. And it has also positioned itself as a key player in the AI and robotics industries. Tesla teased an autonomous humanoid robot, Optimus, during its AI Day last year, and Musk believes that technology could be "more significant that the vehicle business over time." That's why this stock is a smart long-term investment.
