Amazon Stock Split: Amazon Announces Stock Split and Buy Back
Updated on March 9th: While a predicted in January that a stock split was highly likely, the Amazon board today announced a 20 to 1 stock split and a $10 B buy back. Visit Crowdwisdom.live for more data driven analysis and updates.
In last quarter results, Google parent company Alphabet surprised everyone by announcing 20:1 stock split. In technical terms, it should be non-consequential, as it does not change anything about the company market cap or valuations. In simple terms, it means that every share holder will be given 19 more shares for share held and the share price will be 1/20 of the pre-split price. It is just like dividing $20 bill into 20 bills of $1 each.
However, Google rose nearly 7% on the following day post this announcement. Many people believe that it is because of the fantastic results that surpassed Wall Street expectations, but truth is that split news has its own share in share price rising.
Similar trend has been noticed in the recent history with high profile stocks announcing the stock split. Apple announced 4-for-1 stock split in July 2020 and since then it has beaten S&P 500 with 70% gain over 41% of index. Tesla is another in the queue, after declaring 5-for -1 stock split, its share price has escalated 180% vs 35% for S&P 500. Nvidia shares have gone up by nearly 75%, easily beating index returns.
With this backdrop, investors will not be surprised if other big companies also announce share split in the near future. The most likely candidate among them is Amazon Inc (AMZN). The arguments are listed below stating that it is right time for Amazon Inc CEO Andy Jassy to talk about the share split:
Updated, March 9th, 2022
- Stock Current Price- The current share price of Amazon Inc is $2920 (as of 24.02.2022 11:10 am GMT). It touched a peak of $3731.41 on 8th July 2021, and since then it is in jittery mode, thanks to inflation fears in US and Russia – Ukraine war, which has act like icing on the cake, it has lead every stock market around the globe into bear market territory. But, still Amazon share price is hovering around $3000, which is kind of displeasing for the eyes of small investors- trading on brokerage free platform like Robinhood. Some investors do mark Amazon as “expensive” just due to its share price, while for all practical purpose, share price has nothing to do with valuations of a company. Amazon share price has stopped small investors to buy even one share and Amazon stock split can increase shareholder base for Amazon, which can be a catalyst for share upward journey in short run.
- Andy Jassy Needs a Proactive Step to Win Investors- Since new CEO Andy Jassy took over the realm, Amazon did not move up and is down by 7.32% in last one year as of this writing. With share price near $3000, it is unlikely to be traded in large volumes. But a decisive share split can change that. Since Andy Jassy took over the charge, Amazon Inc has produced excellent results with AWS and advertising leading the pack, but same is not reflected in the share price. A low share price can increase the volume of buying on excellent quarter results in 2022 and can attract investors. CEO Andy Jassy has produced excellent results, but it will be in vain if share price remains stagnant. Share split in coming months can change the scenario upside down.
- A place in Dow Jones Industrial Average- Google and Amazon are one of the top tech companies that should find place in any index, but it is the make-up of Dow Jones that prevent them for being part of it. Dow Jones is a price sensitive index and that means that share price has a role to play in index rather than its market cap. Google and Amazon both being around $3000, any move in them will disrupt the index. That is the reason that many bluechip companies like Apple and Microsoft have regularly announced splitting to keep their share price in check. In the latest Dow Jones reshuffling, it settled for Salesforce Inc rather than going for Amazon or Google for the same reason. Also there are some low growth silver hairs in index like IBM, Intel Corp. and Cisco System Inc that are waiting to be replaced. With Google announcing stock split pending in coming July, it will surely find a place in Dow Jones and that will leave only Amazon to ponder more seriously towards stock split.
With shares priced in excess of $3200 per share, will Amazon soon announce stock split?
Amazon Stock Split: Amazon Stock Split History
While all the above factors can be negated, one fact it announced its stock split in 1999. It has undergone 3 stock split and all have come in year 1998 and 1999 and since then management has been muted on the topic of share split. History of Amazon share split is tabulated below:
|Date||Split Ratio||Price before Split|
|2nd June 1998||2:1||$85.68(1st June 1998)|
|5th January 1999||3:1||$354.96 (4th January 1999)|
|2nd September 1999||2:1||$119.06(1st September 1999)|
No share split has been announced in last 22 years, given that all the three share splits were successful and price did increase post-split in the short term. A share split can provide short term squeeze like earlier splits, especially when it is long overdue.
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Amazon Stock Split: Amazon Stock to Split Again in Future?
Amazon has witnessed an impressive growth curve in its share price since its last amazon stock split and that has started speculations that another split is around the corner, as some traders believe that current share price is making Amazon stock inaccessible to retail people. While this is partly false as many broking firms allow for buying of fractional shares also, but it is all about creating perception, as some investors see a sticker price of more than $3200 and they label the stock as “expensive”.
It is worth pondering that share price is meaningless and should never be a factor while deciding whether to purchase a share or not. Rather than share price, increased sales, widening profit margins and new lines of business are much more relevant to the decision of buying a share, more so when we have option to buy fractional share.
Another reason for Amazon to think of a future Amazon stock split would be if it wanted to enter on the Dow Jones Industrial Average. This is because Amazon high share price would have a disproportionate effect on Dow Jones Industrial Average, one way for Amazon to fix this is through a stock split which would reduce Amazon’s share price and have a more proportionate contribution in the market. But at the same time, only four of the world’s ten largest companies by market capitalization are included in the Dow Jones, with Amazon showing minimal interest to be included.
Amazon’s net sales grew by 38% year on year in 2020, representing Amazon’s biggest growth figure in the history but since then its growth rate is settled again to historical norms of around 30% for 2021. Amazon stock has doubled over the past three years, placing it fourth most valued publicly traded company in the US, with a market cap of more than $1.69 trillion.
It is also to be noted that there has been a considerable changing of the guard at Amazon in the recent months, with Andy Jassy taking the mantle of CEO from founder Jeff Bezos, since taking the helm of the e commerce giant, Andy has not touched the matter of stock split, but it seems to some that Amazon stock split is imminent.
Truth be told, no one knows that whether Amazon will announce stock split again and if yes, when? But, it is clear from the history in case of Amazon and from recent examples that stock split does provide a momentum, if not long term, at least short term and with all the major companies announcing stock split recently and US witnessing stock split becoming a rage again, it will not be surprising to hear Amazon stock split is in the cards.
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Amazon Stock Split: Q4 Estimates
Amazon is going to announce their Q4 earnings report on February 03, 2022. Analysts are expecting a good Q4 results but the bottom line numbers are not looking good compared to where they were in the previous Q4. Getting into their Q3 results, they are also not near to the expected estimations as the net income is decreased to $3.2 billion.
In this quarter, Amazon is expecting addition of some billion dollars cost as the company is growing massively and also they increased the wage cost, resolving the supply chain issues and supply shortages. Net sales are expected to be in between $130 billion to $140 billion with a growth of 4%-12% compared to last year’s Q4 reports. operating income is expected to be about $3 billion compared with $6.9 billion in fourth quarter of 2020.
The wallstreet analysts are expecting the revenue to be $137.7 billion and expected EPS is about $3.74, which is a decrease of 73% from last year Q4 EPS. the consensus is very high and the recommendation is to buy this stock.
Amazon Stock Split: Conclusion
Truth is that Amazon’s leadership has not touched the topic of a amazon stock split for a long while and it is not fixed that they will do so in near future at least. But it is also true that Amazon had sluggish performance over the past year in spite of excellent results and that signals towards overdue of breaking bulky share price. Amazon has remained in headlines for past couple of months due to various reasons like labor issues or supply chain disruptions hampering e commerce sales, stock split may provide Amazon Inc to be in headlines for couple of more months and may lead to short term squeeze for the share price.
Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.