Why Amazon Stock Popped Today
What happened
Shares of Amazon (NASDAQ: AMZN) were moving higher today after the tech giant surprised the market by announcing a 20-for-1 stock split and a $10 billion share-repurchase authorization.
The stock was up 5.4% as of 10:10 a.m. ET Thursday on the news.
Image source: Amazon.
So what
Amazon has historically eschewed shareholder-friendly moves like stock splits and share buybacks, focusing instead on reinvesting in the business to build long-term value.
But the company's new CEO, Andy Jassy, who took the reins from Jeff Bezos last July, appears to be taking a different approach to returning capital to shareholders.
The stock split, which is scheduled to take effect on June 6 pending shareholder approval, does nothing in and of itself to increase the value of the stock. It simply divides each share investors currently own into 20 pieces worth the same as the original one.
A single Amazon share now trades for nearly $3,000, and that can seem unaffordable to retail investors, even with fractional ownership available from most brokerages. The stock split will make the price of a single share around $150, which could bring more retail investors into the stock.
Additionally, the $10 billion share repurchase authorization signals that the business has reached a new stage. The company is no longer the fast-growing but break-even enterprise it was a decade ago. It's now a profit machine that produced $25 billion in operating income last year, and the company believes it makes sense to return some of that cash to shareholders.
Though $10 billion is still less than 1% of Amazon's market cap, the move also shows that management believes the stock could be cheap enough to buy back, something that would have seemed impossible a few years ago.
Now what
Since Jassy took control eight months ago, investors haven't gotten many clues into his management philosophy. Like Bezos, he doesn't participate on earnings calls, and he's been relatively quiet on social media and in interviews with the press.
The stock split and repurchase announcement look like Jassy's first major departure from Bezos' philosophy, and could signal more shareholder-friendly actions to come, like a dividend eventually. That's likely years away as Amazon still trades like a growth stock, but Jassy seems to be running the company like the cash-generating blue chip that it is, rather than as a start-up, as Bezos always liked to see it.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool has a disclosure policy.
