Amazon.com shares are gaining momentum after the e-commerce and cloud computing giant declared a 20-for-1 stock split and made the announcement for an expanded stock-repurchase program.
Although stock splits don’t automatically equate to value for shareholders- they’re the financial equivalent of cutting a pie into smaller pieces- retail investors favour them, and split announcements cause short-term grabs of the stock. Amazon (ticker: AMZN) shares were up 6.4% to $2,962.34 on Thursday.
The company also went ahead to announce a $10 billion stock- repurchase plan, replacing a previous $5 billion stock- purchase authorization in which the company bought back $2.12 billion of its shares. The program doesn’t have a set expiration date.
The Amazon split comes on the heels of a similar announcement by Alphabet (ticker: GOOGL) which is splitting its shares 20-for-1, effective July 15. In 2020, Apple (ticker: AAPL) also split its stock 4-for-1.
One possible advantage that could accrue from the stock split will be the addition of its shares on the Dow Jones Industrial Average. Usually, adding high-priced shares to the Dow can prove problematic because the index is price-weighted- the same percentage move matters more for a high-price stock than a low priced one. For instance, a 1% move in UnitedHealth (ticker: UNH), which trades for $486 a share and has the highest price shares in the Dow, carries nearly triple the weight in the index in comparison to say Apple (ticker: AAPL) shares which closed Wednesday’s trading at $163.
Adding a stock with a price within the four-digit range would instantly give the company the heaviest weighting in the index- currently, neither Amazon nor Alphabet is included in the index. A stock split could be the push these stocks need to be included in the index.
Important to note is the fact that changes in the components of the Dow occur infrequently- the last changes came in August 2020, with Amgen, Honeywell and Salesforce.com that were added to the index, replacing ExxonMobil, Pfizer and Raytheon. The Amazon split will be finalized close of business on May 27.