Amazon has announced a 20-for-1 stock split and a share buyback of up to $10bn, in an effort to boost its stock price in the face of heavy operating costs and concerns over staff retention.
The split, which does not technically change the company’s fundamental value but often spurs investor optimism, is the fourth in the company’s 28-year history. The last was in September 1999.
Amazon’s stock closed on Wednesday priced at $2,785.58. The announcement prompted an after-hours jump of about 7 per cent.
Trading on the new split-adjusted basis will begin on June 6, according to a filing, if it is approved by shareholders at Amazon’s annual general meeting in May. Investors will receive 19 additional shares for every one they hold, multiplying the total number of outstanding shares but reducing the value of each share.
It follows similar moves from Alphabet, which announced a 20-for-1 split last month. In 2020, in the midst of surging markets during coronavirus, Apple and Tesla each announced their own splits, 4-for-1 and 5-for-1, respectively.
“Big tech stalwarts all saw massive strength during the pandemic and the stocks are now ripe for a split,” said Dan Ives, analyst with Wedbush. “Amazon is following the lead of Apple, Tesla, and Alphabet on the stock split path. These are smart moves as investors positively digest stock splits.”
Amazon’s value has risen more than 220 per cent over the past five years, pushing it to a market cap of more than $1.4tn. But after receiving a massive boost early in the pandemic, with households turning to the company in blistering numbers, the share price has faltered as the true cost of keeping its logistics operation running became apparent.
The group’s shares are down 18 per cent since the start of the year, compared to Alphabet’s fall of 8 per cent and Apple’s 11 per cent.
The approval from Amazon’s board for a $10bn share buyback of the group’s common stock does not have an expiration date, and replaces a previous 2016 authorisation to buy back $5bn, of which it had repurchased $2.12bn. Of this, $1.3bn was bought earlier this year, according to a filing, the company’s first purchase of its own shares since at least 2018.
“The stock split has zero fundamental impact on the business,” said Brent Thill, an analyst with Jefferies. “But the buyback drives lower share count and hopefully higher earnings per share.”
The move is the Seattle-based company’s latest attempt to provide added incentives to its corporate staff, in the face of longstanding criticism that it pays less than its competitors in the tech sector. Last month Amazon told staff in a memo it would raise its cap on base pay rate to $350,000, up from $160,000.
Amazon said: “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.”