Andy Jassi, Chief Executive Officer of Amazon.Com Inc., speaks at the GeekWire Summit in Seattle, Washington, USA on Tuesday, October 5, 2021.
David Ryder | Bloomberg | Getty Images
Amazon shares tumbled in the market, rising more than 5% after the company announced a 20-to-1 stock split and said it would buy up to $10 billion in additional shares.
It was the second best day of the year for Amazon, which jumped 14% on Feb. 4 after an upbeat fourth-quarter earnings report. On Thursday, the stock closed at $2,936.35.
The stock split does not change the company’s fundamental outlook, but lowers the price of each share, potentially attracting a wider range of investors. In the case of Amazon, a 95% drop in share price could make the company a contender for inclusion in the Dow Jones Industrial Average, which weights its 30 components by share price rather than market capitalization.
If the split had taken place as of the end of Wednesday, the value of each share would have increased from $2,785.58 to $139.28, and each existing holder would have received 19 additional shares for each one they held. Amazon will have 12th place among Dow stocks, which will put it in the middle, next to Walmart.
“We believe AMZN is one of the largest companies with a clear eye on the US economy and is not included in the Dow Jones Top 30,” Rohit Kulkarni, an analyst at MKM Partners, wrote in a note to clients following the announcement. He recommends buying shares.
Amazon is the latest highly valued tech company to lower the price of every share through a stock split. Alphabet, the parent company of Google, announced a 20-to-1 split in February. In mid-2020, Apple unveiled plans for a 4-to-1 split, and Tesla told investors it was introducing a 5-to-1 split.
For CEO Andy Jassi, who took over from Jeff Bezos in July, the split and buyback could be aimed at appeasing shareholders who have been having a hard time lately. Last year, Amazon stock was the worst among major U.S. tech stocks, and in 2022, prior to the announcement, the stock is down 16%.
Amazon said the change also aims to help corporate employees.
“This separation will give our employees more flexibility in how they manage their wealth at Amazon and make the share price more affordable for people who want to invest in the company,” an Amazon spokesperson said in a statement.
The distribution of shares as a result of the split will be made to shareholders at the end of the business day on June 3, and trading, taking into account the split, will begin on June 6.
This is Amazon’s fourth stock split since its 1997 IPO and the first since 1999, when the company was several times smaller than its current size. On June 2, 1998, it also split on a 2-to-1 basis; 3 to 1 on January 5, 1999; and 2-to-1 on September 2, 1999
Amazon shares are up more than 4,300% since the last stock split was announced.
– Robert Ham of CNBC contributed to this report.
LOOK: Brent Till of Jefferies sees the stock split as a good outcome.