Amazon announced a 20-for-1 stock split, along with a $10 billion buyback plan, that has sent its stock soaring amidst a tough year so far.
No, it’s not an antitrust thing, but a stock split!
Good things come to those who wait, and for Amazon (NASDAQ: AMZN) investors, that wait finally seems to have paid off. The Big Tech firm announced a long-awaited 20-for-1 stock split yesterday, to the surprise of many.
So, what does this change?
Fundamentally, absolutely nothing. All Amazon has done is split its proverbial pie into smaller segments. For every one share you currently own, you’ll now own 20. There are some advantages though.
A lower share price makes Amazon more attractive to retail investors. While this advantage has been eroded away with the recent rise in fractional investing, it could still offer Amazon a short-term boost.
According to a company spokesperson,
“This split would 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.”
The split also paves the way for Amazon to be added to the Dow Jones Industrial Average. The blue-chip index is price-weighted, meaning it monitors whether its highest-priced stock has a price more than 10 times that of the lowest. With Amazon currently trading at over $2,785 per share, a 20-to-1 split would see that drop closer to $140 per share — well under the price limit currently in place.
This will mark the company’s first stock split since 1999, with its shares up over 4,500% in the interim. This, coupled with the announcement of a $10 billion stock buyback, has sent Amazon shares soaring by almost 7% in pre-market trading.
While these signs are certainly bullish, Amazon is down over 18% this year following a rotation away from tech stocks. This good news will certainly stem the bleeding, but a bumpy ride still lies ahead.