On Wednesday, March 9th, tech giant Amazon (AMZN) announced that it would move to split its stock for the first time since the dot-com boom. Since the firm last made such a move, in 1999, its share value has increased by over 4,500%, potentially putting its stock beyond the financial reach of lay traders. Could Amazon’s expensive share price have pushed executives to make this decision?
Shares to Divide
Amazon’s move comes in the wake of fellow tech industry leader Alphabet’s (GOOG) 20-for-1 split announced in early February. Analysts at Bank of America (BAC) posit that such financial machinations could be becoming more popular as firms with high share prices seek to attract new investors. Furthermore, a possible wave of new investment in these companies could boost the S&P 500 (USA 500) as a whole.
Stock splits don’t undermine the overall market capitalisation of a given company. Rather, in the case of 20-for-1 stock splits like those proposed by Alphabet and Amazon, shareholders will receive nineteen additional shares for each share they already hold, lowering the price of an individual share by a factor of twenty.
Amazon has been a publicly-traded company since 1997 and instituted three splits in its stocks in the late 1990s. According to one of the e-commerce giant’s spokespeople, Amazon’s stock split will make equity management more flexible for those employed by the firm, and could also make buying into the company’s success more attainable for lay traders. According to some market experts, more large firms may be considering splitting their stock due to the high growth in retail trading fostered by apps like Robinhood (HOOD) observed throughout the pandemic era.
Amazon’s already filed to move forward with the stock split with the American Securities and Exchange Commission yesterday. If approved by the executive board on May 25th, Amazon’s 20-for-1 stock split will take place on June 3rd. Those who already hold Amazon stock on May 27th will be eligible to receive the aforementioned additional shares.
Another change in the tech leader’s financial direction is a forthcoming share buyback, whereby Amazon will repurchase its own shares from investors, which could help the firm consolidate ownership and also appear more attractive to traders. The $10 billion buyback has already been approved by Amazon’s board of directors. A little over six years ago, the online shopping pioneer announced its plans to buy back $5 billion worth of shares. However, the repurchase did not come into effect until this past January, following Amazon’s first bearish turn since 2020, and so far less than half of the approved amount has been bought back. The buyback plan announced on Wednesday will supersede the firm’s previous program, which took years to come to fruition.
Legal Clouds Gathering?
Following Amazon’s two announcements yesterday, the company’s share price rose 2.3% over the course of trading, perhaps signaling positive sentiment on the part of traders toward the firm after. This could mark a turnaround for Amazon’s fortunes on the stock market after the previous four trading days ended in a loss, perhaps due to the general shying away of investment from tech stocks in these uncertain times. However, not all is rosy on the horizon for the California-based giant.
Members of the House Judiciary Committee in Washington turned to the United States Department of Justice in their quest to bring Amazon under investigation on Wednesday. According to several lawmakers from both sides of the partisan aisle, Amazon has violated antitrust laws in its efforts to achieve market dominance. Basing their assertions on news reports, members of the committee voiced their suspicions that Amazon systematically disadvantages third-party sellers on its e-commerce platform by marketing similar products at a lower price.
Amazon executives have continued to deny the accusations, but the associated court battle could still be far from a conclusion, with the House of Representatives’ antitrust committee even threatening to subpoena former CEO, Jeff Bezos.
If Amazon’s buyback plan is implemented and brings about the foretold drop in share price, the firm could even be eligible to join its tech industry peer Apple (AAPL) on the Dow Jones Industrial Index (USA 30). Time will tell whether this e-commerce giant’s latest financial moves will draw much-desired new investment, or whether judicial proceedings will stymie Amazon’s growth potential.