History shows Amazon could be the next tech stock to beat the market after its 20-1 split

Published Thu, Mar 10 202212:43 PM ESTUpdated Thu, Mar 10 20225:40 PM EST

Amazon could be the latest technology name to beat the market after announcing a stock split and buyback program if recent history is any indication. The e-commerce giant on Wednesday declared a 20-for-1 stock split — its first split since the dot-com boom. Amazon also said the board authorized a buyback worth up to $10 billion. "While not altering anything with the fundamentals, stock splits of this nature have been perceived as a shareholder-friendly move in that a lower price per share makes share ownership more accessible to a wider audience of investors," Goldman Sachs' Eric Sheridan said in a note Thursday. Amazon closed at $2,785.58 per share on Wednesday. Were the split to happen as of Wednesday's close, the cost of each share would be $139.28, and shareholders would have 20 shares for every share they currently own. The move mirrors stock-split announcements by other mega-cap tech companies such as Apple in 2020. That stock outperformed the S & P 500 between the time the split was announced and when it took effect, Goldman noted. Other stock-split names include Tesla and Nvidia. Google parent Alphabet also announced a split on Feb.1. Since then, the stock has beaten the S & P 500 by 3% through Wednesday's close. It is slated to take effect in July. *GOOGL row returns are calculated as of the market close on Wednesday. (Source: Goldman Sachs) "After years of not caring that their stock prices needed commas, in the last five weeks both Amazon and Google have announced stock splits. Why? Our best guess is that they both want to appeal to millennials since so many more are actively investing now than before the pandemic," said DataTrek co-founder Nick Colas. "This cohort also happens to be in their prime earning and spending years, so any incremental investment interest on their part may have positive spillover effects to the underlying business," Colas added. A number of Wall Street analysts have also noted the stock split could boost Amazon's chances of inclusion in the Dow Jones Industrial Average. "The price-weighted Dow index may be more likely to include Amazon at a lower per share price, given the potentially smaller impact on overall index volatility," said Cowen's John Blackledge. Analysts also said the share repurchase program signals a sharper focus on profitability from Amazon. "Following a significant capital investment cycle to support a rapid expansion of e-commerce volumes during the Covid-19 pandemic and to support the rollout of one-day and same-day Prime shipping options, we believe that investment intensity is now downshifting to a more sustainable pace," Wells Fargo's Brian Fitzgerald said. Investors responded favorably to the news of Amazon's move, with shares up more than 6% Thursday afternoon. —CNBC's Michael Bloom and Jeff Cox contributed to this report.

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Amazon could be the latest technology name to beat the market after announcing a stock split and buyback program if recent history is any indication.