Amazon share price: 3 reasons for its 20-for-1 stock split

2) Amazon share price momentum

Alphabet, Tesla, Apple, and Nvidia are far from their share price highs, but they are all up significantly since their stock splits. Meanwhile, Amazon’s share price is worth what it was in July 2020. And after sliding from $3,696 since 18 November to $2,910 today, pressure on the new CEO to arrest the slide remains intense.

And psychologically, retail investors and employees may be more likely to purchase the stock if they can buy multiple whole shares, rather than part-purchasing. In Amazon’s own words, the split provides ‘more flexibility in how (employees) manage their equity in Amazon and make the share price more accessible for people looking to invest in the company’.

Wedbush analyst Dan Ives believes ‘even though they (stock splits) doesn’t change the valuation, from an individual investor perspective, (the high price) would make the stock less appealing.’

3) Primed for Dow Jones inclusion

Amazon’s stock split could see it join the prestigious Dow Jones Industrial Average index; as the index is price-weighted, Amazon’s current share price would carry too much influence. But after the stock split, it would then meet the eligibility criteria. The last company to join the Dow was Apple in March 2015, nine months after it completed a 7-for-1 stock split.

DataTrek co-founder Nicholas Colas argues that while Amazon’s management are unlikely to care about inclusion in the Dow Jones ‘from a purely financial perspective,’ they ‘perhaps’ care from ‘the perspective of corporate recognition.’

And potentially, as monetary policy tightens, more investors will seek the safety of the Dow Jones’ ultra-blue-chip offerings.

Moreover, Deutsche Bank analyst Lee Horowitz recently released a bullish note on the company’s prospects. Horowitz believes Amazon’s retail sales will grow by 25% this year, double the Refinitiv average analyst estimate, driven by ‘ongoing share gains in the massive grocery market…ranked as the top grocer amongst consumers.’ And he highlighted its AWS Web Services division’s ‘$80 billon in gross backlog additions,’ which could drive revenue from $62 billion in 2021 to $83 billion in 2022, and towards $107 billion in 2023.

The Amazon stock split is investor-friendly, and fellow tech stocks have found success in the strategy. But past success is no future guarantee. The Amazon share price may not dance to Jassy’s tune.

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*Based on revenue excluding FX (published financial statements, June 2020).

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