Prosper Junior Bakiny, The Motley Fool
5 min read
A stock split is a corporate action in which a company increases the number of shares it has outstanding by dividing existing shares into multiple shares and proportionately decreasing its share price. Stock splits don’t change a company’s intrinsic value, but they can garner significant attention because they make each share more affordable, potentially increasing trading activity.
And the latest major corporation on Wall Street to announce a stock split is none other than Meta Platforms (NASDAQ:META). The tech leader has beaten the broader equity market since its 2012 IPO, gaining a little over 1,700%. Yet, the stock still has outstanding long-term prospects.
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Meta’s strong third-quarter update
Meta Platforms announced its stock split alongside its third-quarter results. The split wasn’t the best part of the company’s update: Meta’s financial performance during the period was pretty strong. Meta Platforms’ revenue increased by 26% year over year to $64.6 billion.
True, the company’s operating income dropped by 37% year over year to about $13 billion, but that was largely due to legal-related expenses. Meta recorded a $9.89 billion charge because of a recent legal settlement. Without that, the company’s operating income would have increased by 11% year over year.
Besides, the legal settlement was worth the trouble. Meta Platforms agreed to pay up to $18 billion (with $12.7 billion guaranteed and $5.3 billion contingent on certain conditions) over 10 years to a bipartisan coalition of attorneys general representing dozens of U.S. states and territories in connection with lawsuits alleging that Meta’s social media platforms have harmed consumers.
The amount is by no means catastrophic, especially considering the time frame. Returning to Meta’s third-quarter results, the company posted earnings per share of $3.83, up 265% year over year, as the company’s provision for income taxes dropped significantly. Meta also made progress elsewhere.
For instance, the company’s daily active people across its websites and apps rose 3% year over year to 3.64 billion. Now turning to Meta’s planned stock split, the company will create a new Class C non-voting common stock and issue one Class C share for each outstanding share.
