Amazon: stock splits and buybacks equal short-term thinking

The mini-trend for stock splits in Big Tech is feather fluffing from companies that want to highlight how quickly their share prices have risen. Apple, Alphabet and Tesla have all made the move. Now here comes Amazon.

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

But fractional trades already mean investors do not have to buy one pricey share to participate. Still, news that Amazon’s board approved a stock split and $10bn buyback plan lifted the share price 7 per cent in after-hours trading. It is an artificial gain.

Amazon has long preferred investment to handouts. Yes, shares have fallen since founder Jeff Bezos stepped back and Andy Jassy took the top job last year. But the company’s long-term investment in infrastructure is a better use of funds.

The stock split will do nothing to Amazon’s market value. The smallish buyback hardly moves the needle either. But it could affect future investment. It equals just 0.7 per cent of market value and only a fraction of Apple’s vast programme of share repurchases. But Amazon does not have Apple’s cash pile. Rising costs and supply chain problems added up to negative cash flow last year.

Net income forecasts are underwhelming. Amazon is lifting its US Prime subscription price this year from $119 a year to $139. There are more than 200mn Prime subscribers around the world. If 100mn are in the US it would mean an extra $2bn a year of low effort gains. But investments in warehouses, automation and AWS will soon swallow that.

It is possible that Amazon will authorise a buyback it does not fully use. But if the company believes that its spending habits should change, it should communicate that. Amazon is known for its long-term bets. It should stick to them.