Stock split
Another tech split! What could this mean for investors and maybe beyond, as the company share trades at a three-digit price?
A stock split is a corporate action that enables the company to trade at a lower price while issuing additional shares to investors at a specific ratio.
EasyUSD:
Amazon.com Inc (AMZN)
It's not the first, and it's definitely not the last. Amazon is another mega-cap that took the spotlight after the company's share price fell by over 90% due to the stock split announced earlier in the year. The split ratio was 20:1, which means that the share price was slashed by 20x, and the number of shares increased by 20x. From trading above $2000, the stock opened Monday at a new share price just below $124 per share.
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Prior to the stock split, net sales in the first quarter (March 2022) increased to $116 billion from $106 billion in the previous comparative period (PCP). This represented a 7% growth. Cash flow from operations decreased by 41% to $39 billion for the 12 months that ended in the same period, from $67% PCP, due to the inflation-related headwinds and the geopolitical factors in the west. In addition, as a retailer, global supply chain issues took a toll on the company during the period and the pandemic.
To resolve this, the company launched an investment venture called the Amazon Industrial Innovation Fund. The fund is valued at $1 billion, which will be used to invest in tech start-ups that will help enhance the group's customer fulfilment, logistics and supply chain.
While the company closed the quarter with a net loss of $3.8 billion, or $7.56 per share, strong growth came from its cloud services, AWS. The business has been growing by 34% annually over the past two years, with consumer business growing by 23% annually.
"We're no longer chasing physical or staffing capacity. Our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfilment network," Andy Jassy, Amazon CEO said.
The company closed Q1 FY22 with a balance of $36 billion cash on hand.
Outlook
Focusing also on growth, beyond our ordinary retailers, Amazon has been making strides towards integrating tech into its business. The company also introduced its new "Just Walk Out" technology into some of its businesses and announced other innovations to make the experience easy for both business-to-business and business-to-customer clients.
To expand its streaming offers, Amazon acquired Metro-Goldwyn-Mayar (MGM), a leading entertainment company. This acquisition was valued at $8.45 billion. In addition to growing its portfolio, the company also invested $10 million in EFG Hermes, a financial services company with a footprint in over 13 countries, with an option to acquire a stake in vaIU consumer finance in the future. Through the investment (and agreement with vaIU), Amazon will be offering Buy Now Pay Later (BNPL) services in Egypt, a market expected to reach $3 trillion by 2030 as consumers seek debt alternatives that provide low or no interest in the short term.
While the stock may have been trading at high multiples (high price to earnings) of 38x in 2021, the company's footprint is one factor that justifies this. Furthermore, given its profitability, we may see a closer shift to earnings in 2022 FY, assuming that the current headwinds and seasonal factors do not last long and it’s still trading within the current share price range.
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Informed decision
Stock splits do not change the company's intrinsic value, but only change the earnings per share since more shares are issued. Stock splits also make the stock look more affordable.Investors need to note that dilution can come into effect, as the company introduces more shares to create flexibility in terms of employee/staff benefits, etc. The split may also provide "soap to wash" 🧼 the bad reputation the management and staff have received over the years.Noting that the volatility introduced sour market sentiment, the stock may face a downside trend as uncertainties of another tech crackdown hinders with the sentiment of investors.
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Sources – EasyResearch, Amazon.com Inc, Arabian Business, Nasdaq, Washington Post.
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