Amazon: stock splits and buybacks equal short-term thinking

Big Tech’s mini stock split trend is resonating with companies that want to highlight how fast their share prices have risen. Apple, Alphabet, and Tesla have all made the move. Now it comes Amazon.

The split is the fourth in Amazon’s 28-year history. The company claims that a 20-to-1 split that lowers individual stock prices will make them more accessible investments. Its value has more than tripled in the last five years, reaching a market cap of more than $1.4 trillion.

But fractional deals already mean investors don’t have to buy an expensive stock to participate. Still, news that Amazon’s board of directors approved a stock split and $10 billion buyback plan sent the stock price up 7 percent in after-hours trading. It’s an artificial gain.

Amazon has long favored investing over handouts. Yes, stocks have fallen since founder Jeff Bezos stepped down and Andy Jassy took the top job last year. But the company’s long-term investments in infrastructure are a better use of funds.

The stock split will not affect Amazon’s market value. Even the small buyback hardly moves the needle. But it could affect future investments. It represents just 0.7 percent of market value and a fraction of Apple’s massive share buyback program. But Amazon doesn’t have Apple’s cash pile. Rising costs and supply chain issues added up to negative cash flow over the past year.

Net income projections aren’t exactly great. Amazon is increasing its US Prime subscription price from $119 per year to $139 this year. There are more than 200 million Prime subscribers worldwide. If 100 million are in the US, that would mean an additional $2 billion a year in profits with little effort. But investments in inventory, automation, and AWS will soon swallow that up.

It’s possible for Amazon to authorize a buyback that it doesn’t fully utilize. But if the company believes its spending habits should change, it should communicate that. Amazon is known for its long-term bets. It should stay with them.

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