Nintendo has taken the opportunity with its annual financial results to make some notable business moves, even if they have little to do with the games we play or the systems we own. In addition to a planned share buyback, the company has announced a major change to its share/stock structure with a ’10 to 1′ split.
First of all, let’s see what that means. On September 30, Nintendo will ‘split’ each share into 10; So if you own 10 shares in the company, they will convert to 100 shares. The big picture means that Nintendo will go from having an approved issue of 400 million shares to four billion, multiplying by 10.
To clarify, this will not automatically improve the value of individual stocks or shares; For example, if you have a stock valued at $100, after a split like this, you will have ten shares valued at $10 each.
Nintendo has given the following reason for this move:
Reduce the minimum investment price through stock splits, thereby increasing the liquidity of the Company’s shares and further expanding the Company’s investor base.
Interestingly, this is a move that is usually made both to please current investors (some have been asking Nintendo to do this for some time) and in response to a particularly strong position. The better a company performs, the higher the share price, with the flip side that this can slow down and restrict trading, making it especially difficult for smaller investors. Nintendo’s closing price on May 10 on the Tokyo Stock Exchange is 56,360 yen, which is equivalent to approximately US$433 per share. After this split on September 30, the price of a share would be around $43.
Investopedia highlights the following benefits and motivations for a move like this:
Increasing the liquidity of a stock makes it easier for buyers and sellers to trade the stock. Liquidity allows traders and investors to buy and sell shares of the company without too great an effect on the share price. That can help companies buy back their shares at a lower cost, since their orders wouldn’t drive up the share price of a more liquid stock as much. For some companies, this can mean significant savings.
While a split, in theory, should have no effect on a share’s price, it often results in renewed investor interest, which can have a positive effect on the share’s price. While this effect may diminish over time, stock splits by blue-chip companies are a bullish sign for investors.
It is certainly a move typically used by large and successful corporations. For example, Walmart has had multiple stock splits over the years, and SpaceX confirmed a similar 10-to-1 split earlier this year.
As for the reason and timing of this announcement, Libra Investments Chief Investment Officer Yasuo Sakuma suggested to Bloomberg [paywall] which provides a boost to investors in a context of lower sales and profits projected for next year.
The stock split plan would obviously be a boost. I’m surprised Nintendo announced a stock split after resisting it for so long.
An interesting move, then, and it will be interesting to see what impact it has once it’s completed on September 30.