E-commerce giant Amazon.com, Inc. (AMZN) announced on Wednesday, March 9, that its board of directors had authorized a 20-for-one stock split and $10 billion buyback. The split is the Seattle-based company's first since 1999 and its fourth since going public in 1997. The stock split takes effect at the close of business on June 3, with trading to begin on a split-adjusted basis on June 6.
- Amazon has announced a 20-for-one stock split and $10 billion buyback.
- A stock split makes a company's shares more accessible to a larger number of investors because of their lower price.
- Amazon said the lower trading price would help its corporate staffers manage their stock in the company.
- Other big-tech names to have approved stock buybacks recently include Apple, Tesla, and Google parent Alphabet.
- Amazon's $10 billion buyback replaces a $5 billion share repurchase plan established in 2016.
Companies typically split their stock to lower its trading price, making it more accessible to a larger number of investors because of its cheaper price. However, splits don't change the company's underlying value, as the stock's market capitalization remains unchanged. For example, as of Wednesday's close, a 20-for-1 stock split would see Amazon's share price go from $2,785.58 to $139.28 but the company's market value remain at $1.42 trillion. Shareholders would also receive an additional 19 shares for each one they own.
A traditional stock split is also known as a forward stock split. A reverse stock split is the opposite of a forward stock split. A company carrying out a reverse stock split decreases the number of its outstanding shares and increases the share price proportionately.
Stock Split to Help Staffers Manage Compensation Plans
Amazon said that the lower trading price would help its corporate employees who own stock in the company. "This split will give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company," an Amazon spokesperson said in a statement.
Stock Splits Gain Popularity Amid Tech Bull Run
The decade-long bull market in tech stocks has seen many of the sector's most prominent names approve splits to lower their stock prices. Last year, iPhone maker Apple Inc. (AAPL) announced a four-for-one split, while electric vehicle (EV) pioneer Tesla, Inc. (TSLA) accelerated interest in its stock with a five-for-one split. More recently, Google's parent company Alphabet Inc. (GOOG) disclosed a 20-for-1 split, which takes effect from July 15. Amazon shares have gained over 4,300% since their last split on Sept. 2, 1999.
Nasdaq data compiled between 2012 and 2018 shows that stocks in the S&P 500 tend to rise 5% in the year following share splits, including 2.5% immediately following the announcement.
Largest Buyback in Amazon's 25-Year Listed History
Amazon's plans to buy back $10 billion of its shares marks its biggest share repurchase plan since listing on the Nasdaq in 1997. The buyback replaces a $5 billion plan established in 2016 in which the company has purchased less than half its targeted amount. Although the e-commerce giant's buyback was set up six years ago, it didn't start repurchasing stock until this year,
The company, which doesn't pay investors dividends, spent $1.3 billion to repurchase 500,000 shares from Jan. 1 to Feb. 2, 2022, coinciding with Amazon's stock tumbling 10.3% in January, its worst monthly performance since December 2018.
Amazon shares climbed 6.62% in after-hours trade Wednesday following the stock split and buyback announcement.