Amazon has been extraordinarily successful delivering shareholder value by plowing profits back into growing their business rather than via dividends or share repurchases.
The buyback might seem to be a strategy change, but it is "only" a $10B authorization, and the last authorization never resulted in more than half of the purchasing happening:
This stock repurchase authorization replaces the previous $5 billion stock repurchase authorization, approved by the Board of Directors in 2016, under which the Company had repurchased $2.12 billion of its shares.
Anyone know what a stock split typically means for current shareholder value? I’m assuming the price would go back up and shareholder might make a boatload of money.
One one have any expert advice? I know nothing about stocks.
It just means that the price of an individual stock is too high for the average investor to be able to purchase it.
AMZN closed today at $2,782.94. If they did a 20:1 split today, that means if you owned 1 share @ $2,782.94, when you wake up in the morning you would now own 20 shares @ $139.14 (20x the shares @ 1/20th the original price).
It can lead to a slight bump in stock price because it's easier for average folks to buy a $139.14 share than a $2,782.94 share. More demand -> prices go up. However, macro conditions like the US economy, world news, or news that affects the business directly are probably going to have a greater impact on price than a stock split.
Theoretically a stock split doesn’t change anything - let’s say you used to have 100 shares valued at 10 dollars each, and the company decides to change that to 200 shares at 5 dollars. You still have the same amount of value (1000 dollars).
So why do it? Usual reason is to make trading a bit easier - now you can sell 1 share at 5 dollars, rather than having to sell 1 share for 10, which might make it easier to find a buyer.
If you work for the company you should keep your shares and vest as much as possible. The split has no impact on you in reality. If you work there you are in for the long haul and you’re going to do well given the current trajectory.
Real numbers are much more intuitive -- It's easier to find a buyer for $500 for 1 share than $3000 for one share. (And extremely low prices are subject to non-trivial rounding error in per-share prices) That's why companies try to keep their stock between $10 and $500, using splits or reverse splits.
It means absolutely nothing technically, but it does cause a short term spike in value because companies only do this when they are doing extremely well. So it is a confidence check. Small investors can now buy individual shares of the stock and there are some small changes as a result of companies that are part of the Dow Jones, and other stock groupings.
In the short term the volatility will likely increase, expect single digit up/down fluctuations every day for a bit.
This is all my experience, thoughts, etc.
AMZN is a great stock. Most people are not aware of the key assets of the company.
> Anyone know what a stock split typically means for current shareholder value?
Theoretically nothing. Example, you own 1 HN stock trading at $1000 ( total value of $1000 ). HN has a stock split of 10-1. Now you own 10 HN stock trading at $100 dollars ( total value of $1000 ).
Lets imagine that HN stock is popular and lots of retail investors want to buy HN stock but only 10% of retail investors can afford $1000 for 1 share. But 80% of investors can afford to pay $100 for 1 share. So you can bring in more retail into the mix by splitting the stock. Netflix and Tesla are examples of stocks that did spectacularly well after stock splits. But we are in a stock bubble and most stocks have done well so can't really credit the stock split for the boost in price. No guarantee amazon will do well. Especially if the overall market tanks, amazon will go down with the market.
Berkshire class A is an example of stock that buffet refuses to split and it's trading at $500,000 per share. Fair to say that most retail investors can't afford to buy one share. Buffet did create a class B stock that has split to make it affordable for retail investors.
There is also something called a reverse stock split where many stocks are converted into fewer stocks in order raise stock prices. This is sometimes done to meet with stock exchange listing rules ( minimum share price ).
I realize that stock splits theoretically don't change anything for shareholders, but is that also true of RSU holders? Is an RSU a share held in escrow (and thus the number of shares should go from 1 to 20 for each RSU), or is an RSU a promise to give a single share to the holder at a future date?
I don't think so, since it's technically future income. If you quit or lose your job, unvested RSUs are revoked, and there are probably other circumstances on the employer's part that could have a similar effect.
I once worked at a small (non-IPO'd) business that was acquired by a large multinational, and one of the first things the multinational did was to cancel all unvested options.
One consideration is that Amazon rounds RSU vests down to the nearest share, leading to larger and larger rounding over time (without splits). Splitting reduces RSU vest rounding, which could now mean an extra ~couple thousand dollars worth per RSU vest
lol $10 billion buyback = $100-150 billion in shareholder value created instantly (going by afterhours gains). That's why companies do buybacks even though the media complains about it. It's a good deal, at least in the short-term. Bezos wealth increased enough that he could pay back the buyback by selling some of his inflated stock. It's sort like an infinite $ machine.
Use seller data to figure out which of your competitor's products are the most profitable, copy their product, short-sell their stock, buy-back your own stock with the cash, sell a bit of it when it pops to pay your Yacht/Jet/Hooker bill.
bezos selling to "cover" the buyback doesn't produce money. In fact, if he did that, he would lose out to transaction costs and gain nothing!
Buy back doesn't create value (nor destroy value) - it just shifts the dollars from the company to shareholders, who could decide to sell to retrieve the money at a later date.
Of course, buying back at a time when the share price is lower than expected (given a company's inside information) means they actually do gain value (lost from those shareholders who did the selling at the time of the buyback). Market participants who believe Amazon not to be irrational would also start buying as soon as they hear the news, assuming that there's inside info that the company is acting on resulting in such a buyback.
One question I have is about the timing of the orders: If an investor wanted to buy a large amount of a company's stock, they'd be careful to try to not drive up the price for themselves (I would think.) But a company doing buybacks sorta wants to drive the price up. To what extent are they trying to get the best deal?
I suppose it's a matter of if they are favoring their future share holders or the ones selling.
There's no favouring. The price is determined by the market - if a large enough buy order comes, it will move the market, whether it's from the company itself, or the general public.
Let's say my company has $50 in liquid assets, the overall company is worth $100 (making the EV, "enterprise value" of the company $50, if we treat the liquid assets as being worth their face value, $50), and there are 50 shareholders, each holding one share.
In this naive model, one would expect each share to be worth $2.
If the company spends all its liquid assets buying out 25 shareholders at $2 apiece (prices respond to demand for shares, of course, so this toy model doesn't hold at these ratios, but ignoring that for a second), we now have 25 shareholders, each owning 1/25th of a company that's now worth only the company's EV of $50, i.e., each share's still worth $2. So no value was created, it was a waste of time.
In practice, many many companies' cash holdings are not valued at par by the company's existing investors. That is to say, if the company spends their cash on something that isn't value destroying (surprisingly difficult! Many an acquisition is value destroying!), they can actually increase the value of each share by spending the money in a way that investors like.
Share buybacks thus have the counterintuitive impact of raising the value of each share not by transferring money to the remaining shareholders, but by reducing existing shareholders' risk that management will misuse the company's liquid assets on some ego-driven vanity project.
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[ 3.6 ms ] story [ 86.2 ms ] threadThe buyback might seem to be a strategy change, but it is "only" a $10B authorization, and the last authorization never resulted in more than half of the purchasing happening:
Source: Amazon Form 8-K: https://www.sec.gov/ix?doc=/Archives/edgar/data/0001018724/0...AMZN closed today at $2,782.94. If they did a 20:1 split today, that means if you owned 1 share @ $2,782.94, when you wake up in the morning you would now own 20 shares @ $139.14 (20x the shares @ 1/20th the original price).
It can lead to a slight bump in stock price because it's easier for average folks to buy a $139.14 share than a $2,782.94 share. More demand -> prices go up. However, macro conditions like the US economy, world news, or news that affects the business directly are probably going to have a greater impact on price than a stock split.
This is true but one of the stupidest things in the market. Some retail investors have not concept of fundamentals.
I have met some myself that don't understand that stock price is a function of the number of total shares.
So why do it? Usual reason is to make trading a bit easier - now you can sell 1 share at 5 dollars, rather than having to sell 1 share for 10, which might make it easier to find a buyer.
Given the cash, would you buy the stock outright? If not, sell.
In the short term the volatility will likely increase, expect single digit up/down fluctuations every day for a bit.
This is all my experience, thoughts, etc.
AMZN is a great stock. Most people are not aware of the key assets of the company.
Theoretically nothing. Example, you own 1 HN stock trading at $1000 ( total value of $1000 ). HN has a stock split of 10-1. Now you own 10 HN stock trading at $100 dollars ( total value of $1000 ).
Lets imagine that HN stock is popular and lots of retail investors want to buy HN stock but only 10% of retail investors can afford $1000 for 1 share. But 80% of investors can afford to pay $100 for 1 share. So you can bring in more retail into the mix by splitting the stock. Netflix and Tesla are examples of stocks that did spectacularly well after stock splits. But we are in a stock bubble and most stocks have done well so can't really credit the stock split for the boost in price. No guarantee amazon will do well. Especially if the overall market tanks, amazon will go down with the market.
Berkshire class A is an example of stock that buffet refuses to split and it's trading at $500,000 per share. Fair to say that most retail investors can't afford to buy one share. Buffet did create a class B stock that has split to make it affordable for retail investors.
There is also something called a reverse stock split where many stocks are converted into fewer stocks in order raise stock prices. This is sometimes done to meet with stock exchange listing rules ( minimum share price ).
When a split happens the parked shares also split and now there are more shares parked but still at at value of 100k.
I once worked at a small (non-IPO'd) business that was acquired by a large multinational, and one of the first things the multinational did was to cancel all unvested options.
Yes, RSUs are updated in response to a stock split the same way already issued existing stock is treated.
Some guys just have it all figured out, huh?
Buy back doesn't create value (nor destroy value) - it just shifts the dollars from the company to shareholders, who could decide to sell to retrieve the money at a later date.
Of course, buying back at a time when the share price is lower than expected (given a company's inside information) means they actually do gain value (lost from those shareholders who did the selling at the time of the buyback). Market participants who believe Amazon not to be irrational would also start buying as soon as they hear the news, assuming that there's inside info that the company is acting on resulting in such a buyback.
I suppose it's a matter of if they are favoring their future share holders or the ones selling.
In this naive model, one would expect each share to be worth $2.
If the company spends all its liquid assets buying out 25 shareholders at $2 apiece (prices respond to demand for shares, of course, so this toy model doesn't hold at these ratios, but ignoring that for a second), we now have 25 shareholders, each owning 1/25th of a company that's now worth only the company's EV of $50, i.e., each share's still worth $2. So no value was created, it was a waste of time.
In practice, many many companies' cash holdings are not valued at par by the company's existing investors. That is to say, if the company spends their cash on something that isn't value destroying (surprisingly difficult! Many an acquisition is value destroying!), they can actually increase the value of each share by spending the money in a way that investors like.
Share buybacks thus have the counterintuitive impact of raising the value of each share not by transferring money to the remaining shareholders, but by reducing existing shareholders' risk that management will misuse the company's liquid assets on some ego-driven vanity project.
I don't see how buybacks can help in the long term a company that is not issuing dividends.
They are burning real money to buy a potentially higher valuation that can evaporate in an instant (think of Meta)
> Even as the United States continues to experience its longest economic expansion since World War II