Stock Split Watch: Is Amazon Next?

Stock Split Watch: Is Amazon Next?

The chatter calling for Amazon.com (NASDAQ:AMZN) to execute a stock split is diminishing, but that’s surprising. The stock continues to rise, making the arguments for a lower share price via a split all the more tantalizing.

There are also a couple of good reasons why Amazon should announce a stock split as soon as later this week. You might think these bookkeeping moves are silly zero-sum games, and that’s fair. However, a lot of other market watchers see an Amazon split as the key to attracting even more retail investors while also making life easier for options traders. Let’s see why Amazon could be the next major stock to declare a stock split.

Amazon is rocking

It’s good to be Amazon. The e-tail king was doing just fine before the pandemic shifted e-commerce into an even higher gear. The 38% increase in net sales that Amazon posted last year was its heartiest top-line gain in nine years.

Things aren’t slowing down in 2021. Revenue soared 44% during the first three months of this year.

Investors are paying attention. Amazon held up better than most growth stocks during the correction earlier this year. It enters this trading week within 3% of the all-time high it hit two weeks ago.

There are only three U.S.-exchange-listed stocks trading at higher price points than the roughly $3,700 that Amazon is fetching as of Monday morning. Amazon’s market cap is more than double those of the three higher-priced stocks combined. It’s time for a stock split.

The clock is rolling

Amazon reports its second-quarter results after market close on Thursday. Stock splits are often announced during an earnings release, whether the report itself is positive or negative.

Adding to the likelihood of a stock split is that CEO Jeff Bezos officially stepped down as CEO earlier this month. If new CEO Andy Jassy wants to break the mold, there is no easier move than declaring the stock split that Bezos never cared to execute.

A stock split is a zero-sum game. A single share of Amazon at $3,700 would be the same thing as 50 shares at $74. However, it’s not easy to trade options on a $3,700 stock. We’re not just talking about throwing speculators a bone, as there are plenty of conservative risk-management tools available for long-term Amazon investors through the options market.

Stock splits may not seem to matter as much as they did just a few years ago. Investors can buy fractional shares through a growing number of brokers. Zero-commission trading makes it easier than ever to buy a couple of shares at a time. However, there is still a natural attraction to low stock prices.

A lower stock price would also make Amazon a no-brainer addition to the Dow Jones Industrial Average the next time the archaic but still relevant index shakes up its 30 members. In short, you don’t have to be a fan of stock splits to see how an increase in retail and possibly institutional ownership can make Amazon even more valuable.

Your legacy begins now, Jassy. A stock split makes more sense than you probably think.

Amazon earnings preview: As shoppers increasingly head out of their homes, e-commerce sales could slow

With more consumers heading back to restaurants, events and vacation destinations, analysts are concerned that Amazon.com Inc.’s earnings report will reflect an e-commerce slowdown.

Amazon AMZN, -0.58% is scheduled to announce second-quarter earnings on Thursday after the closing bell.

“By now, we think it’s understood that overall e-commerce sales decelerated in 2Q,” wrote UBS analysts led by Michael Lasser, citing the latest Census data showing a 12% increase in second-quarter non-store sales (which is mostly comprised on e-commerce). E-commerce sales growth was 26% the previous four quarters.

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“There’s probably several reasons for the change in trend, including the reopening of stores and a shift to leisure activities and travel (i.e. there’s less need to order online when on vacation).”

UBS also suggests that heading back to the office could reduce the number of shoppers clicking to buy.

“This means less time at home, reducing the need to order some products online e.g. groceries.”

UBS rates Amazon stock buy with a $4,350 price target.

Consumer Intelligence Research Partners (CIRP) data indicates that Amazon’s focus on adding to its more than 200 million Prime members around the world is yielding results.

“Beyond meeting the obvious and enormous challenge of scaling up to accommodate increased demand, Amazon mostly convinced shoppers to join Prime,” said Josh Lowitz, CIRP partner and co-founder in a statement.

“The well-developed Prime membership model worked, with Amazon gaining about 30 million new individual Prime shoppers in the U.S. in the past 12 months.”

However, Zack’s notes that shares of both Amazon and Apple Inc. AAPL, -0.24% have lagged behind other tech stocks.

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“It appears the market sees these two leaders’ pandemic outperformance being at the expense of future periods. This view likely explains why the market effectively shrugged standout results from both these players back in April,” Sheraz Mian wrote in a report published Friday.

Still, Benchmark analysts are upbeat, though it’s for a terrible reason.

“Shares have just started to sneak out of an almost 12-month trading range, likely aided, unfortunately, by increasing concerns of a pandemic resurgence,” Daniel Kurnos wrote.

Benchmark rates Amazon stock buy with a $4,400 price target

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Amazon has an average buy stock rating and average target price of $3,690.02, according to 50 analysts polled by FactSet.

Here’s more of what you should know about Amazon before it reports second-quarter earnings:

Earnings: The FactSet consensus is for earnings per share of $12.28, up from 10.30 last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, forecasts EPS of $15.17.

Amazon has beat the FactSet EPS consensus the last four quarters.

Read: Many Amazon Prime Day customers placed more than one order, with 11% placing five or more

Revenue: The FactSet consensus is for revenue of $115.37 billion, up from $88.91 billion last year.

Estimize forecasts revenue of $118.07 billion.

Amazon has beat the FactSet revenue consensus the last 10 quarters.

Stock price: Amazon shares have gained 13.5% for the year to date. The Amplify Online Retail ETF IBUY, -0.63% has gained 8.9%. And the S&P 500 index SPX, -0.53% is up 17.5% for the period.

Other items:

-Prime Day may have been lackluster. UBS analysts say this year’s Prime Day event, which took place on June 21 and 22, was “underwhelming.”

However other analyst groups are more upbeat.

“[W]e think a strong Prime Day, early back-to-school season with potential shortages, and no apparent slowdown in consumer spending could contribute to an upside surprise and better-than-expected 3Q guidance,” wrote Benchmark.

Truist Securities uses data from the Adobe Digital Economy Index, which showed a 6.1% Prime Day sales increase to $11 billion, and other data points to determine the event was “successful.”

And Wedbush analysts think Amazon Web Services will drive revenue growth into the future.

“We believe that Amazon Web Services will continue to grow at a high clip this year,

up nearly 29% year-over-year, driven by a secular shift toward cloud storage, partnership agreements, and international expansion,” analysts wrote.

Wedbush rates Amazon stock outperform with a $4,300 price target.

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-Amazon will continue to invest in video content following the MGM announcement. Amazon announced in May that it would acquire movie studio MGM, an $8.45 billion deal that is under Federal Trade Commission review.

Truist analysts say the addition of MGM content, which includes the James Bond films, along with an $11 billion investment in Prime Video and Music content, as well as investments in logistics and fulfillment are part of Amazon’s efforts to beef up its Prime offerings.

“We view all these investments as evidence of Amazon’s customer-obsessive ethos, as the company continues to pour money into additional services to make Prime

membership that much more valuable, which should increase engagement, lower churn, extend long-term value and reinforce Amazon’s scale advantages over time,” Truist wrote.

Truist rates Amazon stock buy with a $4,000 price target.

Credit Suisse analysts say investment activity will also turn back toward last-mile delivery.

“We believe the output of this stepped up investment activity will be the resumption of one-day Prime delivery expansion (which reached just shy of 50% prior to pandemic capacity headwinds,” analysts wrote.

“As the company typically deploys new fulfillment assets during 3Q heading into the holidays, we believe it will not be too long before it will announce a faster delivery option.”

Credit Suisse rates Amazon stock outperform with a $4,850 price target.

-Amazon maintains advertising momentum. Truist analysts also note that Amazon’s advertising business has grown 40% to 50% over the last several quarters.

“Our conversations with marketers indicate that sellers continue to lean in hard on Amazon, given the direct response and high intent nature of the platform,” analysts said.

“Additionally, as a high margin business, strong advertising growth is a material source of operating leverage, which offsets higher shipping and fulfillment costs.”

Is Amazon stock ready for blast-off before Jeff Bezos reaches space?

Amazon (AMZN) officially has a CEO not named Jeff Bezos as of Monday (it’s Andy Jassy), but a stock price that’s acting like it normally does: moving up and to the right.

Shares of the tech beast have surged 14% to $3,642 in the past month in the lead-up to Jassy assuming the CEO mantle from the soon-to-be astronaut Bezos. As of Tuesday afternoon trading, Amazon’s ticker page was the most trafficked on the Yahoo Finance platform — beating out Didi (stock down 21% after a China crackdown on the newly public ride-hailing platform).

The surprising upward momentum in Amazon’s stock in the face of Bezos stepping aside has some veteran strategists calling attention to the potential for a big upside breakout.

“The new CEO has just taken over for Jeff Bezos and the stock has responded nicely over the past few days. This now has the stock testing the upper bounds of the sideways range it has been in for almost a year now,” explained Miller Tabak chief markets strategist Matt Maley. “Therefore, if (repeat, IF) it can break above the top end of that range (at about $3,550) in any meaningful way, it’s going to be VERY bullish for the stock. Given how well other mega-cap tech stocks have been acting recently, it should be bullish for other names as well,” he added.

Amazon’s stock is currently trading above the top-end of the range Maley outlined.

Amazon is the best-performing mega-cap tech stock of the past month, per Yahoo Finance Plus data. Shares are up 14% during that span, out-performing Apple (+12%), Microsoft (+10%), and Facebook (+6%).

To be sure, the stock stock is a solid vote of confidence on the direction of Amazon under Jassy.

Jassy joined after Amazon’s IPO in 1997 and has built the AWS business up from the ground floor over nearly two decades. He is seen internally at Amazon as having the same demanding leadership style of Bezos and his keen sense of detail.

“We just don’t really think you are going to see any major strategic or operational shifts with Amazon with this transition from Jeff Bezos to Andrew Jassy,” said Loop Capital analyst Anthony Chukumba said on Yahoo Finance Live.

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Chukumba has a Buy rating and $3,775 price target on Amazon.

Added Chukumba, “If it ain’t broke, don’t fix it. With these record numbers that we are seeing from Amazon pretty much quarter after quarter, why would it make any sense for Andy to make a change in strategy.”

FILE - In this Dec. 5, 2019, file photo, AWS CEO Andy Jassy, discusses a new initiative with the NFL during AWS re:Invent 2019 in Las Vegas. Amazon announced Tuesday, Feb. 2, 2021, that Jeff Bezos would step down as CEO later in the year, leaving a role he’s had since founding the company nearly 30 years ago. Amazon says Bezos will be replaced in the summer by Jassy, who runs Amazon’s cloud business. (Isaac Brekken/AP Images for NFL, File)

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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