A few weeks after Alphabet, another US technology giant, Amazon (AMZN), has announced a stock split. The special thing about it is that there had not been a stock split at Amazon for more than two decades, although the time was ripe for one – considering share prices of more than $3,000.
The New Amazon Boss Makes It Possible
One probable reason for the 180 on this issue is Amazon’s new chief executive. Last year, Amazon founder Jeff Bezos handed over his chief executive post to Andy Jassy.
Jassy had already been working for the company since 1997 and had been responsible for building up and managing the highly successful Amazon Web Services (AWS) cloud division since 2003. Apparently, he is more open to capital measures such as the stock split than Jeff Bezos was.
One Share Becomes 20
Amazon announced a 1:20 stock split for the beginning of June. This will turn one share into 20 shares, each worth one-twentieth of the original. Of course, the value of the stock position (share price x number of shares) does not change as a result of a stock split. Stock splits actually only have a visual effect.
Stock Splits Can Have a Positive Price Effect
However, they often result in further gains, especially in the case of shares that have performed strongly. The psychological effect of the more favorable-looking price should not be underestimated. In the case of particularly expensive shares such as Amazon, splits also make shares affordable again for many small investors.
The best example of the success of a stock split is Tesla in 2020. Apple, too, has made regular stock splits a success story. I expect there will be positive momentum for Amazon stock as well.
Next Measure: AWS IPO?
But Amazon has another measure up its sleeve that shareholders would certainly be even happier about than the stock split – namely, an IPO of its cloud division AWS. An IPO of AWS would have two advantages for Amazon. First, it could take the wind out of the sails of calls for stronger regulation of the Internet giant.
And second, a look at the past shows that the sum of the individual parts of a company is usually worth significantly more (as seen, for example, in Ebay’s spin-off of PayPal a few years ago).
An AWS IPO would likely shatter all records on Wall Street and make the stock one of the most sought-after technology stocks. I expect that AWS would be worth over $1 trillion on the stock market. That would be about two-thirds of Amazon’s stock market value with AWS currently.
The shopping business and all other divisions with combined annual revenues of over $400 billion, a dominant market position and 200 million Prime customers would then be valued very low, with the remaining stock market value of around $500 to $600 billion.
AWS IPO is an Ace Up Amazon’s Sleeve
With a possible IPO of the AWS division, Amazon has a big ace up its sleeve, which could significantly increase its total stock market value. Whether it will happen is, of course, written in the stars.
But it is an additional opportunity that’s currently available for free to Amazon shareholders and improves the risk/reward ratio.