Blueprint? That’s how it went for Amazon stock after the past stock splits

• Stock split makes Amazon more attractive for small investors
• Billion dollar share buyback program
• Expanding business

Amazon will do a 1:20 stock split on June 6th. The Internet giant announced this at the beginning of March, following Google’s parent company Alphabet, which also announced a stock split for this year. At the end of March, Elon Musk also went public with the announcement of a share split at Tesla.
All three companies are not listed in the Dow Jones because the leading American index is price-weighted. However, the three tech giants could move up the Dow on a cheaper share price.

Amazon’s stock splits and price explosions

On May 15, 1997, Amazon entered the NASDAQ trading floor. The value of the shares quadrupled almost instantly. Because of the huge success, just over a year later, on June 2, 1998, Amazon arranged for a 1:2 stock split, after which the stock price more than doubled. The second share split took place on January 5, 1999 at a ratio of 1:3. Shortly thereafter, in February, the crash of more than 25 percent followed, followed by a relatively rapid recovery phase. The last split to date took place on September 1, 1999 at a ratio of 1:2, and the price soared again by 48 percent. After that, the stock was very volatile, giving up most of its gains before bouncing back higher. Along with the other tech stocks, Amazon stock plummeted in 2000. After almost 23 years, the fourth stock split is to follow.
Of course, Amazon’s size today, with a market cap of nearly $1.7 trillion, makes it harder to post the impressive profits it enjoyed in the late ’90s. Such jumps in the share price as in 1998/1999 therefore seem rather unlikely. But there are other factors that speak for a good development of the share after the split.

What makes Amazon stock attractive right now?

The allegory of a pizza is often used to explain a stock split: a pizza doesn’t get bigger just because you cut it into more individual slices. This also applies to the valuation of a company. However, a cheaper share price is much more attractive to retail investors, so post-split investors are expected to grab it.
Because the Amazon share is currently not attractive for small investors with a price of over 3,000 US dollars: With an investment sum of less than 3,000 US dollars, a participation in Amazon is simply not possible in many cases and also with an investment sum of 5,000 US dollars, for example -dollar, the cluster risk of investing more than 50 percent of the total amount in a single company is very or too high for an investor.

Another factor in favor of the stock’s appreciation is the board’s authorization to buy back up to $10 billion of stock, also announced by the company in early March. This is Amazon’s largest share buyback program to date. Most recently, in 2016, an authorization to buy back company shares of up to 5 billion US dollars was granted, of which only 2.12 billion US dollars were implemented. There is no timeline for this year’s share buyback program either.
In this year’s letter to Berkshire Hathaway shareholders, legendary investor Warren Buffett is not the only one to describe the buyback of shares as the simplest method of increasing one’s own wealth. In 2022, the German DAX companies also started billion-dollar share buyback programs with outstanding balance sheets behind them.

Argument: Amazon’s balance sheets

However, the most powerful argument for forecasting the share price is certainly the business figures: In the last financial year, Amazon was able to increase sales by more than 21 percent to USD 469.8 billion. Revenue growth of between three and eight percent is forecast for the first quarter of 2022 compared to the previous year. As expected, Amazon posted higher costs in 2021 but grew operating income by nearly 9 percent, to $24.9 billion. Amazon’s profit surplus from the final quarter of 2021 had beaten expectations, but it is due to its stake in electric carmaker Rivian, which is currently under pressure because of the price hike in early March.
The flourishing cloud segment and the price increase for Amazon Prime in the USA are well received by investors. While analysts had expected higher forecasts for 2022, Goldman Sachs and JPMorgan revised the stock’s price target upwards.

Amazon stock all-time high on 07/14/2021 is $3,773.08, same month Andy Jassy took over as CEO. A division of the shares could also open up a new perspective for Jassy, ​​since investors would no longer measure it by this price, which is over 20 percent higher.

Editorial office finanzen.net

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