Apple, LinkedIn...It's Time to Split!
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LinkedIn (NYSE: LNKD) boasts being the largest professional network in the world, and the title does more than aptly fit it. Apple (NASDAQ: AAPL) boasts having the largest market valuation in the world. Investors love these two tech companies for a variety of reasons, and I’ll go over some of them as reasons why splitting their stocks would be good.
Apple and LinkedIn are enjoying enormous success due to the products and services they offer. This has made them very attractive as solid growth stocks to invest in. The problem, if you can call it that, is their prices, both of which have increased exponentially since they began trading as public companies. Considering the main purpose of splits is to lower the price to make the stock more affordable, many are hoping these two will do it.
Apple has already split its stock three times: 1987, 2000, and 2005. All of these were 2-for-1 stock splits. Apple has a market valuation of more than $600 billion. There has been much chatter on the street over the past few weeks about the company needing to do another split, and I’m on that bandwagon. The reasons are twofold. In addition to making it more affordable to buy (if you think $300 a share is affordable!), it could also increase its chances of joining the prestigious list of companies that make up the Dow Jones Industrial Average index.
The last time a new company was added to the Dow index was in 2009 when Cisco Systems (NASDAQ: CSCO) and The Travelers Companies (NYSE: TRV) were added. If Apple did join the list, it would be in good company. Other tech companies already in the 30-member Dow index are Hewlett-Packard, Intel, and Microsoft.
One of the reasons Apple, and even Google, have not been invited to join the Dow relates to the number of shares they have outstanding. The index’s rankings are based on the stock’s price. Considering these two are trading above $600 a share, they would have too much weight, or influence. Sanford C. Bernstein & Co. released a report at the end of July that noted the stocks would have three times the influence of IBM, which has the largest weight in the index.
Apple could eliminate this issue by splitting its stock again. The fact that it has begun paying a dividend again doesn’t hurt either. Also, in its report, Sanford C. Bernstein & Co. speculated that the Dow is likely to add more tech stocks.
Considering its growing popularity, and the subsequent positive effect it’s had on its stock, LinkedIn is also a prime candidate to split its stock. The reason I suggest this has nothing to do with it trying to become a Dow component. Instead, it has much to do with it being a growth stock, and oh how it has been growing. Take its second quarter earnings report for this year for example. Revenue for the second quarter was $228.2 million, an increase of 89% compared to $121 million in the second quarter of 2011.
There are three major products that are driving LinkedIn’s growth: Hiring Solutions, Marketing Solutions and Premium Subscriptions. Its Hiring Solutions product brought in the most revenues, to the tune of $121.6 million.
The earnings news prompted its already climbing stock to climb even further. As of the opening bell Monday, its shares were trading around $109, which is twice as much as the $45 price it achieved when it went public in May 2011.
The company has been able to capitalize on the high number of people seeking employment. Furthermore, the site is playing an important role for businesses looking for qualified people to hire.
As a growth stock, LinkedIn is doing considerably well. A stock split would help increase the amount of its outstanding shares. This would make it more attractive to institutional investors.
LinkedIn is often compared to Facebook (NASDAQ: FB) since they are both social networking sites. However, I see the two, while peers, as being very different. For example, LinkedIn reaps $1.30 per every user hour spent on its site, while Facebook brings in only about six cents per user hour. What I thought was going to be the Wall Street darling for the social networking space has turned out not to be Facebook, but instead LinkedIn.
Maybe at some point in the long term, it’ll give small time investors a chance to buy in and grow their investments.
The same applies to Apple.
TwillyD has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, Google, LinkedIn, and Microsoft. TwillyD has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, Google, LinkedIn, and Microsoft. Motley Fool newsletter services recommend Apple, Facebook, Google, LinkedIn, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.