Apple Stock Split Brings Music to Investors' Ears

Apple (Nasdaq: AAPL) today announced a two-for-one stock split, which will double investors' shares held at the close of business on February 18. Trading of the newly split shares will begin 10 days later.

The split comes after iPod and iTunes sales and the introduction of a mass-market, low-price Mac mini have fueled record-breaking revenues and soaring stock prices during the past year.

Apple reported a net income of US$295 million, or 70 cents a share, in its first-quarter results. That compared to $63 million, or 17 cents per share, in the year-ago period. Its stock hit a 52-week high of $81.99 on the Nasdaq on Wednesday. The shares closed yesterday at $78.36. As of late this morning, the stock was up nearly 3.5 percent to $81.03.

High Growth Rate

Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co., told MacNewsWorld that iPod and iTunes broke through a barrier to simplifying the delivery of music to an MP3 player, and that has paid dividends for Apple.

"Apple was hoping that the iPod would bring some recognition to its other products, and that has happened," Pado said, referring to the oft mentioned "halo effect." "These developments have accounted for a large percentage increase in growth rate, which the company is being rewarded for with its stock price."

Apple's stock has posted a fourfold increase during the past year. Analysts said companies split stocks at certain thresholds to attract new investors who might be unwilling to purchase shares at higher prices.

"Overall we are seeing better action in technology stocks today, so Apple's announcement is set against a positive backdrop," Pado said.

Glimpse Inside

Stocks don't split every day -- and for good reason. Pado said the last thing a company would want to do is split a stock and then have it fall. Thus, Apple's decision to split its stock would appear to demonstrate high expectation for forward progress, he said.

"Apple's decision says a lot about how the board and the company's administration feel about their future prospects," Pado said. "That's being reflected not only in Apple's stock, but it's helping the tech companies in general. There is a positive feeling in the market."