20-for-1 Amazon Stock Split And $10 Billion Buyback? Here’s What You Need to Know
Shares of tech companies are rebounding this week after falling for most of 2022. But Amazon (Nasdaq: AMZN) is leading the market after announcing a 20-for-1 Amazon stock split.
On top of this, the tech giant is authorizing a $10B stock buyback, according to an SEC filing. The news is huge for investors and those looking to own AMZN stock. Other popular stocks such as Apple (Nasdaq: AAPL) and Tesla (Nasdaq: TSLA) are up significantly since announcing splits despite the recent tech fallout.
For example, Apple is up 67% since announcing its split on July 30, 2020, while Tesla is up 200%. Yet the market dynamics are shifting, and many stocks are down over 20% from their highs.
Will the Amazon stock split ignite share prices as it has with past leaders? Keep reading to find out what to expect next.
What the Amazon Stock Split Means for Existing Investors
For AMZN shareholders, you will receive 19 extra shares after the split for every one share you own. For instance, if you own ten Amazon shares, after the split on June 3, the next trading day on June 6th, your portfolio will show 200.
At the same time, the price of each share will also be worth 1/20 the value at market open on June 6th. So, the value of your position will not change, only the number of shares.
To receive the shares, you must own AMZN stock on or before market close on May 27, 2022. But the Amazon stock split is still subject to shareholder approval, taking place on May 25, 2022.
Although the stock split doesn’t change the company fundamentally, it can open the opportunity for more retail investors to buy. As a result, higher demand for a stock can bid the price up, which we have seen with leaders such as Apple and Tesla.
What it Means for New Investors
For investors looking to buy AMZN stock, you have two options. You can either:
- Buy now, paying a larger lump sum.
- Wait until June 6th and buy at the split price.
On one hand, buying now gives you the opportunity before it becomes available to a larger market of investors. At the same time, depending on how much you are willing to allocate, it might make more sense to wait.
For one thing, it makes it easier for Amazon employees to manage their positions. Rather than selling a large lump sum, employees can sell shares as they need.
Another key point to consider is Amazon can reward employees with stock options without committing to a large payout.
Investing Before or After the Split
The big question investors are asking right now is, should I buy before or after the Amazon stock split?
The first thing you will need to consider is how much money you are willing to invest in the company. If you are not willing to pay over $3,000 (the current share price), then waiting may be best.
Sure, you can buy fractional shares, but not everyone has access to that option. Also, if you decide to sell your fractional shares, there can be less demand.
The most important thing to consider is your time frame for investing. If you are investing for five, ten or more years, the stock split will be insignificant at the end of the day. As I have noted, the split will not change Amazon’s value.
At the same time, past splits have shown stocks running up into the actual split date, selling off, and then continuing their uptrend.
But, an important thing to note here is that by Amazon stock splitting, it can boost its chances of gaining entry to the Dow Jones Industrial Average (DJX). With this in mind, the DJX is a price-weighted stock market index, so Amazon’s high price is limiting its chances.
At Amazon’s current price, the stock has too much influence over the index. However, if the Amazon stock split goes through, the DJX committee may think otherwise.
Amazon’s entry into the Dow Jones would solidify its blue-chip stock status, making it even more attractive to investors.
Other Amazon Stock News
In other Amazon stock news, the company authorizes up to $10B in stock buybacks. The new program is replacing the 2016 $5B repurchase program.
To clarify, Amazon is not buying $10B in stock right now. Instead, the board allows the company to purchase up to that amount when they feel it makes sense for long-term growth.
Nevertheless, stock buybacks often suggest the company is doing well and feels it makes sense to reinvest. It can boost shareholder value by reducing the number of shares in some cases.
And lastly, the European Commission is approving Amazon’s bid to buy Metro-Goldwyn-Mayer (MGM) for $8.45B. Although the deal still has a few hurdles to clear, the move would be huge for Amazon’s streaming selection.
MGM is the mastermind media studio behind the James Bond movies, Rocky, Creed, etc. Amazon can instantly boost its Amazon Prime Video catalog if the deal clears.
One Last Thought on the Amazon Stock Split
The big question surrounding the Amazon stock split right now is, will it be enough to gain entry into the Dow Jones. In general, the Dow Jones consists of well-known, well-respected companies. In that event, the case for buying Amazon will be a lot stronger.
You cannot deny Amazon’s incredible growth these past several years. Not only is Amazon a leading eCommerce company, but Amazon Web Services (AWS) is now the largest global cloud provider.
In fact, AWS generated $12.7B in net sales in the fourth quarter with $3.5B in operating income. In comparison, Amazon’s net sales in North America reached over $75.3B while generating $2.9B in operating income.
Amazon’s diversity is a massive strength for the tech giant going forward. Despite AMZN stock down 20% from its highs, the company is still growing at an impressive rate.
At the same time, several factors are presenting risk and investor fear in the stock market right now. For one thing, inflation continues creeping up, and all consumers can talk about is the rising gas prices.
The sentiment is apparent in the market right now. As a result, the University of Michigan Consumer Sentiment Index is at its lowest level in over ten years. But, in the long run, Amazon still looks like a solid bet as a leader in global eCommerce and cloud services.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.