Shares of Amazon (AMZN -2.56%) were climbing today after the tech giant surprised the market with a 20-for-1 stock split and announced a $10 billion share-repurchase authorization. Shares were up 6.2% as of 3:06 p.m. ET on the news.
Amazon's shares are now trading near $3,000. The company had not done a stock split since 1999, before the dot-com crash. Founder Jeff Bezos, who ran the company until last July, had long been uninterested in maneuvers like a stock split or a share buyback, insisting instead that he was building the company for the long term.
Image source: Amazon.com.
The stock split is expected to go into effect on June 6. The share-buyback authorization, meanwhile, accounts for less than 1% of the company's market cap, but is noteworthy as it signals new CEO Andy Jassy's willingness to return capital to shareholders. It could even pave the way for a dividend down the road.
If you're wondering if Amazon is a buy after the news, you're better off not being distracted by the stock split and share buyback. After all, the stock split does nothing to make the shares more valuable as it just divides them into a smaller pieces. The repurchase authorization is too small to move the needle on the stock.
Instead, you should focus on the underlying business. If you do, you'll find that Amazon enjoys a plethora of competitive advantages as the world's largest e-commerce business and the leading cloud-infrastructure service in Amazon Web Services. And despite being the world's second-largest company by revenue, it's still growing briskly.
Amazon continues to grow rapidly and is seeing its profit margins ramp up, as well. The stock split will please retail investors and could even set the company up to be added to the Dow Jones Industrial Average, and the share buyback could be a sign of things to come. But the real reason to buy the stock today is the strength of the underlying business and its well-priced valuation.
