Amazon announces 20-for-1 stock split, $10B buyback
cnbc.com
cnbc.com
The buyback might seem to be a strategy change, but it is "only" a $10B authorization, and the last authorization never resulted in more than half of the purchasing happening:
This stock repurchase authorization replaces the previous $5 billion stock repurchase authorization, approved by the Board of Directors in 2016, under which the Company had repurchased $2.12 billion of its shares.
In this naive model, one would expect each share to be worth $2.
If the company spends all its liquid assets buying out 25 shareholders at $2 apiece (prices respond to demand for shares, of course, so this toy model doesn't hold at these ratios, but ignoring that for a second), we now have 25 shareholders, each owning 1/25th of a company that's now worth only the company's EV of $50, i.e., each share's still worth $2. So no value was created, it was a waste of time.
In practice, many many companies' cash holdings are not valued at par by the company's existing investors. That is to say, if the company spends their cash on something that isn't value destroying (surprisingly difficult! Many an acquisition is value destroying!), they can actually increase the value of each share by spending the money in a way that investors like.
Share buybacks thus have the counterintuitive impact of raising the value of each share not by transferring money to the remaining shareholders, but by reducing existing shareholders' risk that management will misuse the company's liquid assets on some ego-driven vanity project.
Buy back doesn't create value (nor destroy value) - it just shifts the dollars from the company to shareholders, who could decide to sell to retrieve the money at a later date.
Of course, buying back at a time when the share price is lower than expected (given a company's inside information) means they actually do gain value (lost from those shareholders who did the selling at the time of the buyback). Market participants who believe Amazon not to be irrational would also start buying as soon as they hear the news, assuming that there's inside info that the company is acting on resulting in such a buyback.
I suppose it's a matter of if they are favoring their future share holders or the ones selling.
Some guys just have it all figured out, huh?
I don't see how buybacks can help in the long term a company that is not issuing dividends.
They are burning real money to buy a potentially higher valuation that can evaporate in an instant (think of Meta)
When a split happens the parked shares also split and now there are more shares parked but still at at value of 100k.
Yes, RSUs are updated in response to a stock split the same way already issued existing stock is treated.
I once worked at a small (non-IPO'd) business that was acquired by a large multinational, and one of the first things the multinational did was to cancel all unvested options.
AMZN closed today at $2,782.94. If they did a 20:1 split today, that means if you owned 1 share @ $2,782.94, when you wake up in the morning you would now own 20 shares @ $139.14 (20x the shares @ 1/20th the original price).
It can lead to a slight bump in stock price because it's easier for average folks to buy a $139.14 share than a $2,782.94 share. More demand -> prices go up. However, macro conditions like the US economy, world news, or news that affects the business directly are probably going to have a greater impact on price than a stock split.
This is true but one of the stupidest things in the market. Some retail investors have not concept of fundamentals.
I have met some myself that don't understand that stock price is a function of the number of total shares.
In the short term the volatility will likely increase, expect single digit up/down fluctuations every day for a bit.
This is all my experience, thoughts, etc.
AMZN is a great stock. Most people are not aware of the key assets of the company.
Theoretically nothing. Example, you own 1 HN stock trading at $1000 ( total value of $1000 ). HN has a stock split of 10-1. Now you own 10 HN stock trading at $100 dollars ( total value of $1000 ).
Lets imagine that HN stock is popular and lots of retail investors want to buy HN stock but only 10% of retail investors can afford $1000 for 1 share. But 80% of investors can afford to pay $100 for 1 share. So you can bring in more retail into the mix by splitting the stock. Netflix and Tesla are examples of stocks that did spectacularly well after stock splits. But we are in a stock bubble and most stocks have done well so can't really credit the stock split for the boost in price. No guarantee amazon will do well. Especially if the overall market tanks, amazon will go down with the market.
Berkshire class A is an example of stock that buffet refuses to split and it's trading at $500,000 per share. Fair to say that most retail investors can't afford to buy one share. Buffet did create a class B stock that has split to make it affordable for retail investors.
There is also something called a reverse stock split where many stocks are converted into fewer stocks in order raise stock prices. This is sometimes done to meet with stock exchange listing rules ( minimum share price ).
So why do it? Usual reason is to make trading a bit easier - now you can sell 1 share at 5 dollars, rather than having to sell 1 share for 10, which might make it easier to find a buyer.
Given the cash, would you buy the stock outright? If not, sell.
> Even as the United States continues to experience its longest economic expansion since World War II