Why Your Shares Just Multiplied: Stock Splits, Explained

Your portfolio didn’t 4x overnight. It just split.

If you woke up with more shares than yesterday (and they’re worth less per share), it’s not a glitch. It’s a stock split, and it’s one of the weirdest things in finance that doesn’t change anything. But it still matters. Let’s break it down.

What is a stock split?

A stock split is when a company increases its number of outstanding shares by dividing each one into smaller pieces, without changing the total market value of the company.

It’s like slicing a pizza into more slices. You’ve got more pieces, but it’s still the same pizza.

For example:
If you held 10 shares at $100 each, and the company does a 2-for-1 split, you now have 20 shares at $50 each. You still own $1,000 of stock. Just...cut differently.

Stock splits don’t create wealth out of thin air. But they do affect how your holdings look, how options adjust, and sometimes, even how people behave.

Why companies split their stock

The biggest reason: optics.

When a stock trades at $1,000+ per share, it can feel expensive, even if fractional shares exist. A split lowers the price-per-share and makes it feel more accessible to retail investors, even though the actual economics haven’t changed.

Other reasons:

• Stronger signal: Management uses a split to communicate confidence and momentum.
• Broader base: Lower prices can attract smaller investors or index funds.
• Liquidity: More shares mean tighter spreads and smoother trading.

Real-world examples

• Apple has split its stock five times in its history, including a 4-for-1 split in 2020 to reset its price under $150.
• Tesla did a 5-for-1 split in 2020 and a 3-for-1 in 2022, helping it maintain retail enthusiasm.
• Nvidia split 4-for-1 in July 2021 and 10-for-1 in June 2024; its post-split momentum suggests the behavioural impact is real.

Thinking about how a future split (or reverse split) could reshape your option math? Run the numbers in Prospect before you make a move.

What happens when a stock splits?

Three key dates determine the split:

1. Announcement date – The Company says it's doing the split.
2. Record date – Determines who gets the new shares.
3. Distribution date – When your account reflects the new share count.

If you own stock or options, the mechanics adjust automatically:

• Share count increases (per the split ratio)
• Share price decreases proportionally
• Market cap stays the same
• Cost basis adjusts (automatically)

Your ownership stake doesn’t change, even if the numbers look different.

Options and stock splits: What shifts?

If you have options (ISOs, NSOs), your strike price and number of shares adjust to preserve economic value.

Example:
You had 1,000 options with a $50 strike. Post 2-for-1 split? You’ll now hold 2,000 options at a $25 strike. Still the same total value.

RSUs adjust too: More units at a lower price, with identical total value.

Make sure your equity portal reflects these changes. The updates should happen automatically.

Reverse stock splits: Why they’re a red flag

A reverse stock split is when a company consolidates shares to boost the price-per-share. It’s the opposite of a standard split.

So why do companies do this?

Usually:

1. To meet minimum price requirements for stock exchanges
2. To avoid delisting
3. To reset their share price for perception reasons

In startups, you might see a reverse split ahead of a SPAC merger, or to clean up a messy cap table pre-IPO. But it’s often a sign the company has struggled or underperformed.

If your startup announces one, ask questions. Read the filings. Understand the signal.

Does a stock split affect your taxes?

Nope. A stock split alone does not trigger a taxable event.

Here’s why:

• You didn’t sell anything.
• You didn’t receive cash or income.
• You didn’t realize a gain.

Your cost basis just gets adjusted. If you had 10 shares at $100 pre-split and now have 20 at $50, each new share’s basis is $50.

However:

• If you later sell post-split shares, your gain/loss math must reflect the adjusted basis
• If you gifted shares pre- or post-split, make sure the correct cost basis carries over
• If you’re tendering shares during a liquidity window after a split, calculate the new basis before deciding to sell

Why splits “move” stocks

In theory, stock splits should be neutral. In practice, they’re not.

Why?

• Retail traders see a lower price and assume it’s a better deal
• Psychology: A $100 stock feels cheaper than a $1,000 stock, even if the company value is identical
• Momentum: Splits often follow sustained rallies, which means buyers may already be primed to jump in

Even though nothing fundamentally changed, a split can increase demand. That’s not rational, but it’s real.

What if your startup splits before IPO?

It doesn’t happen all the time, but it does happen.

If a company is growing quickly, its stock price will also appreciate rapidly.

A startup may do a split (or reverse split) to:

• Meet listing requirements
• Simplify its cap table
• Align its share price with underwriter preferences
• Give people a higher number of options or RSUs (20,000 feels like more than 10,000, even if the dollar amount is the same)
• To make the strike price feel manageable

If this happens:

• Your ownership percentage stays the same
• Your option strike price adjusts
• Your post-IPO gain math may need extra care

Also, reverse splits before an IPO are more common in SPAC deals than in traditional IPOs. Don’t panic, but do pay attention.

FAQ

Do I get taxed when a stock splits?
No. You didn’t sell or receive cash, so there’s no taxable event.

Is a reverse stock split bad?
Not always, but often. It can be a sign of distress, especially in public markets.

Can startups do stock splits?
Yes, you’ll mostly see it during IPO prep or SPAC deals.

Do stock splits affect RSUs or ISOs?
Yes, but only numerically. Your value stays the same, but units and strike prices adjust.

Should I do anything if my stock splits?
Usually no. But double-check your equity portal and cost basis, especially if you’re planning to sell.

The Bottom Line

When a company splits its stock, your slice of the pie stays exactly the same—only the number of slices changes. Splits are mostly about optics: lowering the price per share can widen the investor base, tighten trading spreads, and send a subtle “we’re winning” signal to the market. 

Reverse splits flip that script, shrinking the share count to prop up a sagging price and often hinting at underlying trouble. And while a split never triggers an immediate tax bill, it does reset your cost basis, so be sure any future sale calculations reflect the new math. Prospect’s modeling tools can help you run those numbers before you decide your next move.

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