Amazon stock rose 7% in after-hours trading after the tech company announced a 20-for-1 stock split and a $10 billion share buyback authorization.
The stock finished the regular trading day at $2,785.58, up almost 3% in a stellar session across the board for Wall Street. Shares in the company have been comfortably above $3,000 throughout 2021 before slumping this year along with those of many other tech firms. They have risen more than tenfold over the past decade, making Amazon one of the world’s most valuable companies, with a market capitalization north of $1.4 trillion.
A stock split reduces the share price and boosts liquidity, but it does not change the value of the company. Amazon’s new price point will make individual shares more affordable, and founder and executive chairman Jeff Bezos often included mentions of individual retail investors reaping small fortunes from their Amazon stock in his letters to investors. Some companies, notably Warren Buffett’s Berkshire Hathaway, have resisted splits, though Berkshire did pull off a 50-to-1 split in 2010. Its Class A shares trade above $400,000 apiece, though it has Class B stock in the $300 range.
Buybacks are generally an encouraging sign for investors, who see the reinvestment maneuver as an indication that senior management believes in the growth potential of the stock. In some cases, a fixation on buybacks at the expense of potential M&A transactions or other uses of capital can end up backfiring on companies. In Amazon’s case, the boosted share repurchase plan doubles the value of a $5 billion buyback authorization put in place in 2016. Of that allocation, the company had repurchased about $2.12 billion of its shares, according to an SEC filing.
The stock split is subject to shareholder approval at the company’s annual meeting on May 25. In the filing, the company said additional details will be laid out in the company’s proxy statement ahead of the meeting. If the shareholders approve the split, each shareholder of record at the close of business on May 27 will have 19 additional shares for every one share held as of June 3. Trading would begin on a split-adjusted basis on June 6.
As tech giants have experienced dramatic growth in recent years, splits have not been uncommon. Apple set a 4-for-1 split in 2020 as it was seeing a boom in demand for its products and services in the early phase of Covid. Splits as large as 20-for-1 are fairly uncommon, but such scale is possible for a company with the resources of Amazon.
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