Amazon announces 20-for-1 stock split and $10 billion buyback plan

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Amazon
.

com shares are moving sharply in after-hours trading after the e-commerce and cloud computing giant announced a 20-for-1 stock split and announced an expanded share buyback program.

While stock splits do not mathematically create any value for the owners — they are the financial equivalent of cutting the pie into smaller pieces — retail investors tend to like it, and split advertising often drives prices up in the short term. In fact, shares of Amazon (stock symbol: AMZN) were up nearly 7% on the news, at $2,978.

Amazon also announced a $10 billion share buyback plan, replacing an earlier $5 billion share buyback authorization in which it repurchased $2.12 billion of its stock. The program has no fixed expiration date.

Amazon split Follow ad last month it the alphabet (GOOGL) is also doing a 20-for-1 stock split, effective July 15. an Apple (AAPL) split its stock 4 for 1 in 2020.

as with

the alphabet
And the

One potential benefit of an Amazon stock split could be adding the company’s stock to

Dow Jones Industrial Average.

Adding high-priced stocks to the Dow is problematic because the index is weighted by price – the same percentage move is more important for high-priced stocks than for low-priced stocks. So move 1% inward

United Health

(UN), which is trading at $486 a share and has the highest share price in the Dow, carries nearly three times the weight of the index as a similar move in, say,

an Apple

(AAPL), which closed Wednesday at $163.

Adding a stock at a price in the four-digit range would immediately give the company the heaviest weighting in the index, and in fact, neither Amazon nor Alphabet is currently included in the index. Divisions can change that.

It is also worth remembering that changes to the Dow Ingredient List occur infrequently — the The last changes came in August 2020With

Amgen
And the

Honeywell

And the

Salesforce.com

Added to the index, with the replacement

ExxonMobil
And the

Pfizer

Raytheon.

The Amazon split will be effective at the close of business on May 27.

Write to Eric J. Savitz at [email protected]