Amazon.com Inc (NASDAQ: AMZN) is a company most Aussies would be familiar with. The US tech giant’s flagship online marketplace has been active in Australia for years now. And Amazon’s dominating presence in cloud computing has also turned investors’ heads in recent years. Not to mention the space-hopping antics of its famous founder Jeff Bezos more recently.
But Amazon might also be famous for its stock price. Amazon shares are among the most expensive on the US markets. Just one will set an investor back US$2,936.35 on the latest pricing. And that’s after a major pullback. The company’s 52-week (and all-time) high remains at a whopping US$3,773.08. That works out to be $5,162.94 in our dollars at current exchange rates.
This aspect of Amazon’s reputation looks set to be shaken up. According to our Fool colleagues over in the US, the company has reportedly just announced a stock split, its first in more than 20 years.
Amazon to join the stock-split club
A stock split is when a company issues more shares of stock in order to lower the price of its individual shares. It has become quite a popular exercise in recent years among some of the US’s largest tech companies. Since 2020, we have seen companies ranging from Apple Inc (NASDAQ: AAPL) and Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) to NVIDIA Corporation (NASDAQ: NVDA) and Tesla Inc (NASDAQ: TSLA) announce stock-split plans of their own.
But Amazon is now the latest to join the club.
The company will reportedly be undertaking a 20-for-1 stock split later this year, subject to investor approval at the annual general meeting in May. That means that if an investor owns one share of Amazon today, they will own 20 shares instead come the split. Each will be worth approximately one-20th of what that stock will be priced at just before the split. The company also announced an expanded share buyback program, to be worth US$10 billion.
Of course, a stock split does nothing in theory to change a company’s value. It can be thought of as ‘recutting the pizza’. If Amazon is the pizza, whether it has eight slices or 16 doesn’t change the overall size of the meal.
Recutting the pizza…
But for a few possible reasons, stock splits tend to be popular with investors regardless. That might be why we saw Amazon shares gain an impressive 5.41% to US$2,936.35 last night during US trading. For one, a stock split usually increases the ownership potential for the company’s shares. In Amazon’s case, it will be a lot easier to buy Amazon shares if they are priced at US$146.82 than $2,936.35. More shares at a lower price usually boost liquidity too.
Here’s how eToro’s Josh Gilbert described the effects of a stock split for retail investors:
Stock splits change nothing about the fundamentals of a stock. The splits are simply a psychological factor for retail investors buying assets. A stock that is priced at USD$100 compared to USD$2,500 is more attractive to retail investors.
Fractional share trading is now an important part of investing, but the price of a stock can still play an important factor. Investors will often feel that a stock with a lower share price has more growth potential than one with a higher price.
At Amazon stock’s last closing price, the US tech giant has a market capitalisation of US$1.49 trillion.
The post Amazon (NASDAQ:AMZN) announces US$10b share buyback and 20-for-1 split appeared first on The Motley Fool Australia.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns Alphabet (A shares), Amazon, Apple, Nvidia, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, Nvidia, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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