Amazon.com Inc. (AMZN) became the second company to hit $1 trillion in market value on September 4, 2018, close on the heels of Apple Inc. that achieved this feat in early August. But in the 20-plus years since its initial public offering (IPO), Amazon stock was not always the hot commodity that it is today. When Amazon first went public in 1997, its stock was priced at just $18 per share.

From that modest beginning, the online retail giant has seen its stock skyrocket, despite a rocky period during the dot-com crash. The company's shares hit a new high of $2,050.50 a share on September 4, 2018. 

If you had invested just $100 in Amazon's IPO, you would have received 5 shares. What is beyond impressive is that investment would have been worth nearly $120,762 at the August 31, 2018 close price of $2012.71/sh. That would yield an increase of more than 120,000% on the initial $100 investment.

Hidden Growth

It is clear from the figures above that even a modest investment in the company in 1997 would have turned into a healthy contribution to anyone's retirement savings. In fact, with this new high of $2,050.50 the share price has grown more than 11,200% since its IPO.

To make sense of how a modest $100 investment can grow into such a hefty amount, it helps to understand the mathematics behind one of the most powerful facets of stock market investing: the split.

Stock Splits: The Basics

A stock split occurs when a company decides to issue additional shares to current shareholders in accordance with the number of shares already owned. A 2:1 split means shareholders receive an additional share for every share they already own. An investor who owns 100 shares, for example, ends up with 200 shares. Stock splits can be as generous as the company that issues them, but 2:1 or 3:1 ratios are most common.

When a stock splits, its price is reduced by the same factor. A 2:1 split means shareholders have twice the number of shares valued at half the price so the total value of the shares remains stable. A 3:1 split means the stock price is reduced to one-third of the original value. 

Companies may announce a split for numerous reasons, chief among them being the desire to keep stock attractively priced for investors, and arguably more liquid.

While the price of stock is initially reduced by a split, the value — or market capitalization — doesn't change much. What has changed is that an investor who used to own one stock, now has two or three depending on the split factor. 

Amazon Does the Splits

Amazon's stock split three times in quick succession: twice in 1998 and once in 1999. 

The company announced its first stock split in April 1998, offering 2 shares for every one share held. That means, the 5 shares an investor of $100 in the IPO would now grow to 10 shares. The next one came just seven months later, a 3 for 1 stock split in November 1998. That would mean that the if you sold no shares, you would now own (10x3) 30 shares. Subsequently, Amazon announced another 2-for-1 split in July 1999, growing your share ownership to 60 AMZN shares.

As of the close on August 31, 2018, those 60 shares would be worth $120,762, an increase of a whopping 120,662% over the initial $100 investment.

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