Recently, Amazon has announced that it will be splitting shares 20-for-1 and, in addition, a share buyback of up to US$10 billion. What does it mean? We tell you!
Amazon shares will be ‘cheaper’
Yes, relatively Amazon stock is about to become 20 times “cheaper.” The company announced that its board of directors approved its first stock split since 1999.
Therefore, if shareholders approve the move in May, then the split will take effect on June 6. But what does all this mean?
At a glance, that means a share of Amazon will go from being worth about $2,800 to about $140 a share after the split. The question is: why would they do this? Would the current shareholders be losing?
No, each current shareholder of the company will receive additional shares for each share held at the close of business on the day the split becomes effective. So if, for example, a company does a 4-for-1 split, the shareholder will receive an additional three shares for every share they held.
So, in the case of Amazon, each previous holder would get an additional 19 shares for every face they own.
Why?
The reason a company conducts a stock split is that it helps attract investors who might be put off by a high price per share. Therefore, the stock split makes people psychologically believe that it is cheaper and, therefore, acquire it.
Although institutional investors don’t care about a company’s total share price, this is different for individual investors. That is why these types of measures are undertaken.
And for the company, the stock split just means a lower share price and more shares outstanding. For the rest, the reality is that they do not affect the value of the company.
“This split would give our employees more flexibility in how they manage their capital at Amazon and make the share price more accessible to people looking to invest in the company,” Amazon said, according to CNN.
And, in case potential shareholders aren’t convinced, the company launches the $10 billion share buyback program.
It’s something new?
No, the reality is that the market has seen the stock split multiple times.
Indeed, in February, Google parent Alphabet announced its 20-for-1 stock split. Also in 2020, Apple revealed plans for a 4-for-1 split.
And, in addition, it would be the fourth division of shares that Amazon has carried out since its IPO in 1997. The first occurred on June 2, 1998, when it was divided into 2 for 1, in January 1999, it was divided into 3 for 1 and, in September of the same year, at 2 for 1. Therefore, this would be the first since 1999.
We want to know your opinion! Will the action taken by Amazon favor the price of the company’s shares in the short and long term?
