Domain Daily: Musk Looks to Split

The Dose

  • Twitter Bots

  • Let's Split

  • Apple's New Product

Twitter Drama

Elon Musk's pursuit of Twitter has taken another turn. In a letter, Musk claims that Twitter has failed to provide him with information about fake accounts on the platform.

The Point: Musk contends that Twitter is "resisting and thwarting" his attempts to measure bots on the platform. As we said last month when Musk first brought up the fake account issue, this could just be gamesmanship. Suppose the billionaire discovers that fake accounts make up a bigger share of users than the company has disclosed. In that scenario, he could push for a lower purchase price. Or it could be an attempt to back out of the deal altogether (although that seems unlikely to work). In any case, it looks like even the world's richest man can feel buyer's remorse.

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Stock Split

On Monday, Amazon completed its first stock split in more than two decades. As a result, shareholders received 19 additional shares for each one they owned when the action went into effect.

The Point: For those unfamiliar, a stock split is when a company increases the number of shares it has outstanding. A split reduces the price per share, but doesn't change the company's overall market capitalization. For example, imagine a company with 10 shares outstanding with a stock price of $10. In that scenario, the company's market cap is $100. If the company does a 10-for-1 split, it'd then have 100 shares outstanding that, all else being equal, would have a price of $1. So, then, why do companies even bother?

There are a few reasons. The first is that it makes shares more accessible to retail investors. At over $2,000 per share before the split, buying a single Amazon share was a serious commitment. However, now that fractional share ownership is common, this is more of a psychological benefit than anything else. But a split does make it easier for everyday people to buy call options. That's because options contracts still trade in 100 share lots. So by doing a 20-for-1 split, Amazon effectively made it 95% cheaper to buy an options contract (although the dollar exposure per contract is also reduced by the same amount). Finally, Amazon's stock split makes it more likely to be added to the Dow Jones Industrial Average. The Dow is an oddity among indexes. It's weighted by stock price rather than each member's market capitalization. Before the split, Amazon's more than $2,000 share price effectively excluded it from the Dow because it would have crowded out all the gauge's other members.

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Buy Now, Pay Later

At its Worldwide Developers Conference, Apple announced a buy now, pay later (BNPL) service.

The Point: Companies like Affirm, Klarna, and Paypal have dominated the BNPL space. However, that's all about to change. Apple Pay is the most used mobile payments service in the U.S. By integrating BNPL into its app, millions of consumers will have little reason to use another platform.

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