Amazon splits its stock and achieves a nice stock market hit
This decision should make it possible to expand the pool of shareholders to more small shareholders and to Amazon employees.
Amazon employs a simple, inexpensive strategy to meet shareholder expectations: splitting. Beginning in early June, the holder of one Amazon stock will be handed out another 19 securities. The market value of Amazon, on the over-the-counter market after the close on Wednesday evening March 9, jumped 6.5%, in response to the announcement. Amazon’s capitalization now exceeds $1.41 trillion.
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The split of the action at one for twenty, certainly does not change the intrinsic value of the company. And yet, it achieves three interesting objectives. Initially, it will broaden the pool of potential shareholders to include more small investors. The action of Amazon was worth Wednesday evening at the close of the Nasdaq 2785.58 dollars. Divided into twenty, the title will become easier to buy in small quantities. If the “to dividewas made today, the stock would be worth less than $140. The stock’s last split was in 1999. Since then, the stock’s value has soared more than 4000%. It was time to act.
Secondly, Andy Jassy also responds to requests from his employees. The boss of the Seattle giant is now facing a huge challenge: recruiting qualified staff and retaining them. Or, in an America plagued by a severe labor shortage, giving employees stock packages is an important means of sustainable recruitment. By dividing the action into twenty, Amazon will be able to more easily reward and motivate its staff.
Amazon is following the recent lead of three other giants. In February, Alphabet, parent company of Google, announces the division of its own action into twenty. In August 2020, Apple and Tesla also split their title: Apple at one for twenty, Tesla at five for one.
Possible inclusion in the Dow Jones index
But the split also increases the chances of inclusion of the title in the flagship index of thirty industrial values of Dow Jones. It is anachronistic that Amazon, number one in online distribution and cloud services, is not already there. The distribution sector is currently represented there by Walmart, the world’s leading group in this category, and Walgreens Boots Alliance, the leading pharmacy chain in the United States.
The calculation method of Dow Jones, which takes into account the absolute value of the action in its weighting, explains the absence of Amazon to date. During a future revision of the composition of the index, it is therefore possible that Walgreens Boots will be ousted, in favor of Amazon. Such a substitution can incentivize demand for the stock entering the index, as the number of funds seek to precisely track the Dow Jones to track its performance.
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Another announcement from Andy Jassy has financed a jump in Amazon’s share price: the board of directors authorizes a share buyback program for an amount that could reach $10 billion. After warning of a slowdown in growth this year, Amazon wants to give its shareholders an important signal of serenity. Especially in the very troubled context of recent weeks. The firm believes it has enough cash to buy back securities that have fallen more than 16% since the start of the year.