Tech bellwether, Amazon, sitting on a market cap of $1.7 trillion, made an announcement on 9th March that the Board of Directors of Amazon.com, Inc. has approved a 20 for 1 stock split of the company’s stock. The final authorization, subject to the approval of the Amendment at the 2022 Annual Meeting of Shareholders, is to be held on 25th May, 2022. If approved, the share split will go into effect by 6th June, 2022.
If that was not enough, it also announced a $10 billion buyback plan, replacing its $5billion stock repurchase plan of 2016, where it did end up repurchasing ~$2.12 billion worth of its shares.
Interestingly, this is Amazon’s first stock split since the Dot Com crash!
Post its IPO in 1997, it first split stock in 1998 on a 2-for-1 basis. It then split stock twice in 1999, first on 5th January on a 3-for-1 basis and second on 2nd September on a 2-for-1 basis.
The stock closed at ~$2785 on Wednesday (9th March 2022), rising 8% on extended trading. If the split were to happen today, AMZN shares would trade around ~$139/$140, implying that if you were to hold 1 share of AMZN today, you would be holding close to 20 shares when the dust settles on all formalities!
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Most companies opt for stock split as a cosmetic measure to introduce their notoriously expensive stock prices to ordinary retail investors and the majority public. Also, it helps current holders multiply their shares. Not to forget the extra liquidity the same brings for the company without messing with their market capitalization. The tech giant that accounts for ~20% of S&P 500 market capitalization is no different.
In a press release, Amazon stated that the stock split would make its share more accessible to the people looking to invest in the company.
Amazon is not the only company that has opted for a stock split this season. Google’s parent company, Alphabet, not long ago, announced an exact 20 for 1 stock split.
Giants like Apple announced a 4 for 1 stock split in mid-2020, while Tesla, opted a 5 for 1 split around the same time. While all these companies have more or less the same reasons for splitting their stock, Amazon may have other troubles up its sleeve to opt for the same.
Amazon had recently made changes to its compensation strategy, aimed at helping corporate staffers. The tech giant boosted its best salary for corporate workers to $350,000 from $160,000 to sustain the competitive market. Amazon stated that this split would give their employees more flexibility in managing their equity. The company is known for generous stock rewards, but the stock remained blue on the markets for long, bringing the company under severe pressure internally.
is as interesting as it can get. Apple, in 2014, announced a 7 for 1 stock split. This helped it get included in the much fanned DJIA (Dow Jones Industrial Average) that is popular for opting for less expensive stocks. Amazon could be betting on the same prize. Amazon, too, through its stock split, aims to find a spot in the DJIA. There is no guarantee that such a thing might happen, but the index may want a piece of one of the biggest techs of the country now that its share price would effectively become cheap.
Thirdly, Amazon also looks to rid the back of stupendous retail participation, which has grown leaps and bounds since the pandemic, thanks to zero-fee/commission-based trading apps. Institution investors may not concern themselves with the split, but the public may relook at the AMZN stock in a new way if the split is successful!
But all things considered, Amazon’s performance has been worrying. Jeff Bezos, the CEO, handed the reins to Andy Jassy to pursue space (tch tch Elon Musk). This was at a time when the company was being probed by antitrust regulators in the US and globally. Amazon fared the worst amongst so-called FAANG (Facebook, Amazon, Netflix, Alphabet, and Google) stocks, rising just 2.4% in 2021, its worst performance since 2014. The pandemic bled the stock on the Wall Street. The same caused the company to report its slowest growth since 2001 (any quarter). In short, the stock had been a disaster on the markets.
Also Read, How to invest in US Stocks
Amazon has featured as the most valuable brand globally, employing around 1.2 million people (2020) and ranking 2nd on the list of Fortune 500 companies. Any move the company makes generates noise. This time, the company has announced a stock split, 20 for 1, 4th time since its inception.
It would be interesting to explore how the markets react and what it brings to the tech giant.
Until then, watch this space.
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Research Analyst: Bavadharini KS