By Dhirendra Tripathi
Investing.com – Amazon.com, Inc. (NASDAQ:AMZN) stock traded 7% higher in premarket Thursday after the company’s board approved a 20-for-1 stock split and authorized the retailer to repurchase up to $10 billion of its common stock.
The split and the proportionate share increase are subject to shareholder approval at the company’s May 25 annual shareholder meeting.
Fundamentally, a stock split does absolutely nothing to the intrinsic value of a share. At the same time, it makes it more accessible to small investors by simply reducing the value of the stock proportionately. Many retail investors base their decision on the absolute value of the share and not always its fundamental strength at that point in time.
The appeal of a split has reduced in recent times though because of the advent of platforms like Robinhood (NASDAQ:HOOD), which permit trading of shares in fractional quantities. The Amazon stock closed at $2,785.58 Wednesday, a price that puts it out of reach for many retail investors.
The company’s proposed $10 billion buyback replaces the previous $5 billion repurchase exercise that still had $2.88 billion left in it. The buyback doesn’t have any last date and the company isn’t obliged to buy back any share. At Amazon’s market cap of $1.42 trillion, a $10 billion buyback amounts to less than 1% of its shares.