Amazon shocked investors today when the e-commerce giant announced it would be conducting a 20-for-1 stock split this summer.
Alongside the stock split, Amazon is also planning to repurchase $10 billion of its own shares in a move that has departed from the company’s traditional approach.
However, given this news, what does this mean for Amazon shareholders going forward?
Amazon Shares Surge After Stock Split Announcement
People interested in stock trading may already be aware of the positive impact of stock splits on a company’s share price. This has been evidenced by the 5.3% jump in AMZN shares after the move was announced.
Put simply, Amazon is dividing each share by 20 – so shareholders will still own the same ‘value’ of shares, but in multiple pieces. Given the share price is around $2,930 at the time of writing, this would essentially mean the price of a single share would equal $146.50 if the stock split took place today.
The main benefit to companies taking this approach is that shares will become more appealing to retail investors. Since Amazon’s shares are creeping closer to the $3,000 mark, this tends to put them out of the price range of casual equity investors.
However, once the stock split takes place, Amazon’s shares will be more accessible to this demographic of investors. In addition, stock splits tend to signal to the market that the company expects its price to continue rising – which tends to cause bullish momentum in the share price.
Share Buyback Scheme Also Creates Buzz with Investors
The second part of Amazon’s announcement concerns a $10bn share buyback scheme, which is perhaps the thing that surprised investors the most. Amazon has traditionally been opposed to providing shareholder value, with Jeff Bezos’ stewardship not even seeing a hint of a dividend.
However, current Amazon CEO Andy Jassy seems to have departed from this approach and is the first time the company has ‘given back’ to shareholders – which is a surprise considering the remarkable profits made every quarter.
As those who invest in stocks may know, share buybacks tend to be a very positive signal, as they hint that upper management believes that shares may currently be undervalued. Furthermore, it also tends to make financial metrics such as the firm’s P/E ratio look more appealing – which can also benefit price.
What’s Next for Amazon?
So, what will this mean for Amazon in the future? Overall, the news seems to have been taken positively by shareholders and the broader market, with AMZN shares making up for most of the losses sustained last week.
Furthermore, the departure from Bezos’ hard-line stance may also signal further shareholder-friendly movements in the future. Although there’s currently no talk of a dividend, today’s announcement certainly makes this prospect more likely in the years ahead.
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