Welcome back, everyone, thanks for joining. We have some exciting news to get into Amazon, as you may have heard just announced a 24:1 stock, split with a little miniscule, 10 billion dollar buyback approval. Now, anytime a big company like Amazon announces, a big stock, split at 24 1 stock. Split it renews an important debate, our stock splits meaningful, do they matter? Should you pay attention to them? There's one group of investors that is firmly.
In the camp that stock splits don't mean anything that they don't matter, then investors are silly for paying attention to it. And that group of investors, that think stock splits are meaningless will look at this bump and price for Amazon after hours after they announced the stock split. And they'll scoff at it saying that investors are foolish. Why are they even paying attention to this? Because after all stock splits don't change the fundamentals of the company.
But then there's another group of investors that have a little bit more of a nuanced argument about stock splits and why they're meaningful. Now in this Yo, I'm going to give you the definitive answer, the correct answer and I'll be explaining why the people that say stock splits do not matter are incorrect, they're wrong. And I'm gonna explain why in
this video. So we have a lot to jump into, I hope you enjoy it. Now, let's go ahead and Jump Right In the first thing, we can set the stage with is that the stock market is down. Pretty big today, another 2% down day, the NASDAQ is down two percent, the S&P 500 is down 1.3%, and even the Dow Jones is down. 1% it. So everything across the board is down. And there is one notable stand out, that's in the green, which is Amazon up four and a half percent.
So Amazon, as you can see, visually hair is one of the notable standouts in all of the tech. And generally speaking, the entire Market besides Commodities that's actually in the green by a significant amount. Now, a lot of investors may look at this news and actually be frustrated by it. Especially if they don't own Amazon stock, they're looking at the price going up and they argue that this is entirely based off of something that superficial that doesn't fun.
Only change the company. Well, I actually think it does change the company fundamentally. If we look at the press release Here, Amazon announced their stock split they highlight one quoted portion of this. This split would give our employees more flexibility in how they manage their equity in Amazon, and make the share price more accessible for people looking to invest in the
company. So the first thing is that Amazon pays a lot of their employees in stock options and they employ over 1.3 million employees. A lot of them working for around. Five forty thousand dollars a year in one of their warehouses when they're trying to pay these employees with stock. It's very difficult to do. When the share price is three thousand dollars per share by breaking it into 22 chunks. It makes it so that it's more granular. They can actually reward their employees better.
They can give them five shares or 15 shares. They don't have to give them one massive, three thousand dollar share. So, first and foremost, this will allow Amazon to better be able to allocate pay to their employees with stock options and in doing that, they can actually Change some of the pay from salary to stock which lowers their tax burden. So right there, we already have one way that this fundamentally affects the company. It affects the way that they can compensate their employees.
It affects retention rates of their employees and it affects their taxes. So people that are saying this has zero effect on the company's fundamentals. Whatsoever are already in correct? This has one Dynamic shift on the fundamentals of the company and the way that they can structure pay for their employees. Keep in mind that when a company's share price gets up to 3,000. Dollars per share or even above 3,000 dollars per share. That becomes very logistically difficult to work with to buy
and sell for anyone. Even people that make a lot of money when I do deposits into my portfolio. I typically do it at at two thousand dollar increments. I'm not throwing in twenty or thirty thousand dollars in a time I put in two thousand dollars and that's still not enough to even buy one share of Amazon and I'm in the high income bracket. If you look at people that work for Amazon, the majority of them are making around 35 to 40 thousand dollars a year. Working in warehouses.
Imagine trying to buy and sell a three thousand dollar share while making forty thousand dollars a year. Logistically, that is almost impossible. It takes over two weeks of salary to buy one, share one share of the company. So this does have a dramatic effect in the way that people both inside. And outside of the company can trade, the stock, a comparison, I would make of why this is logistically important. And why stock splits actually do matter is.
Imagine you go to the grocery store, wanting to buy cereal and the one that you want. By is one box of Honey Nut Cheerios. So you go to the grocery store, you go to the cereal aisle. And you look at the Honey Nut Cheerios and they're only being sold in packages of 20 boxes. So it's five dollars a box, but you have to buy 20 boxes up front, which would cost you $100. That's a lot of money to dish out for cereal more than you're probably wanting to spend right then, but then you also have
your second-best option. The cereal that you like second-best not quite as much as Honey Nut Cheerios, but you have honey. She's of Oats, it's right there. Right? Next to the Honey Nut Cheerios but Honey Bunches of Oats is being sold in one box increments for $5. So you have a decision to make. Do you spend more for the thing you really want? Or do you spend a little bit less for the one that second
best? Naturally many people that are making this decision will go. You know I would buy Honey Nut Cheerios because it's in such a huge bulk. I'm going to go ahead and buy the Honey Bunches of Oats. I just want to spend five bucks. Now I can buy it later when I need more of it. I don't really want to dish out a hundred dollars for cereal right now.
That is what many people are doing in the stock market, with Amazon stock, they look at the stock price and they go it's three thousand dollars for one share of Amazon may as well, just buy some Tesla or Nvidia or apple, right?
They're all great companies, but one of them, I can actually buy a full share and that's more meaningful than buying some fractional share of Amazon. Or if I don't even have fractional shares having to dish out three thousand dollars for one share of Amazon. This Affect how the company trades, many people will choose different companies because buying a 3,000 dollar share is both psychologically and
economically prohibitive. Now, another thing that investors are doing that, I think some mistake is there looking at this stock, split news and the BuyBacks as an isolated event. They're just looking at it as singular events, Amazon splitting their stock, and they're doing this puny 10 billion dollar by back. What's the big deal? Well, if you look at this, in the context of the overall maturity of Amazon, it actually paints a better picture. This is research that I came out
with last month. So February 22nd, this is before the stock split announcement and this is some of my thoughts on Amazon, this paper that I wrote up is going to be available for free. It's in the description of this video if you'd like to download it but let me go ahead and highlight one part of it. Amazon currently does not pay a dividend. So they're not a divot a right there. That rules amount from dividend
investors. They're not a dividend payers, they're not in dividend investing ETFs, they're not in dividend. Counts. Amazon does not do share Buybacks. In fact, they dilute if we look at Amazon shares outstanding, this is what it looks like over time. They went from four hundred and seventy eight million shares outstanding in 2017 to 509 million.
So, Amazon is actually diluting shareholders, issuing, more shares over time as a compensate, their employees, and this is again, something that rules out a cohort of investors. There's many investors at say, they will never buy a company that dilutes them, the issues, more shares. They're only going to buy companies, that either pay a dividend or they do share BuyBacks Amazon has a three thousand dollar share price, and they won't do a stock split again. I wrote this before the stocks,
but announced Seoul last month. Now the three thousand dollar share price. Like we already established rules out. Another group of investors would be investors in Amazon, won't invest in the company because they share price is simply too expensive. Amazon does not smooth earnings meaning, they don't work to make their earnings consistent, some quarters. They have Easy High net income, some they have very low net
income. Some they have good operating income, some they have poor Amazon doesn't try to smooth their earnings like companies like Microsoft or apple and that's again, something that investors look at. So that's another trait of Amazon that's not quote unquote, investor friendly and Amazon spends a fortune on Long Shot, bets that results in a higher PE ratio because they're dishing out all their cash into reinvestments and big long shot
bets and that's very expensive. Amazon has a higher P/E ratio and again, this is another thing that rules out. Another group of would be Amazon investors. Another cohort of investors that won't invest, because a P/E ratios too high. If we look at the PE Ratio, right now, it's 53. And you, and I both know, a number of people that look at Amazon and they would invest in the company. But they say, you know, what? The P/E ratios, too high. It's too expensive.
I'm not going to buy it right now, so Amazon currently does all of these things that It's a large group of investors, but let's for fun, just assume that they do these changes in the future. Amazon starts to pay stable and growing dividend, that would make it. So that all of a sudden, they're opening the gates to Dividend investors. That's a big cohort of
investors. Amazon starts to aggressively buy back, their shares that opens the gates to investors that look at share BuyBacks that don't want to be diluted. Amazon does a 24:1 stock split? That's something they just announced that they did resulting in a higher price because it allows As more people to invest in their company. Amazon, actively Works to smooth their earnings. They do the same thing that Microsoft and Apple does they have more of a consistent earnings that people can rely on
that? Would open them up to another group of investors. Amazon reduces spend on Long Shot bets and focuses on incremental growth in their core businesses. Lowering their PE ratio if Amazon grew their earnings by spending Less on their long shot bets. I'm sure a lot of investors will invest in the company. Imagine if Amazon We had a 25 PE
ratio. I think that would open it up to a lot of new investors so I look at this and right now Amazon has been firmly in this top bracket doing things that are quote unquote, investor unfriendly and as they move to the bottom bracket I think that will unlock value as Amazon gradually matures over time. The company will undoubtedly transition from the top bracket to the bottom, look at Apple as an example. Apple pays a steady and growing dividend so that opens them up to dividend.
Investors. That's a group of investors at Amazon doesn't have apple. Does aggressive by backs of their stock that opens them up to yet another group of investors at Amazon doesn't have apple has done numerous stock splits, this has undoubtedly helped Apple stock price because it makes it easier to trade easier to do options on easier to buy and sell Amazon hasn't done that.
But now they just announced that they are, in the stock prices up. Apple has consistently growing EPs and apple has a lower amount of spend on Long Shots. Amazon Apple stock price has clearly benefited from this transition into maturity as it's open the stock to a wider and more diverse cohort of investors.
So that is the bigger picture of how I view this news of the individual events of a ten billion dollar buyback and a 24:1 stock split in the grander, scheme of things, I think that Amazon is moving down this road of becoming a more mature
company that is more palatable. It's more investable for a wider group of investors, and as they do that, of course their stock price will have upward momentum now this Doesn't mean that the rest of the company in the fundamentals can underperform and this will make up for it. Of course.
AWS needs to keep growing their Marketplace needs to keep doing well, need to keep growing Amazon Prime in the membership and their Logistics. They need to automate a lot of stuff in their warehouse to make their margins higher. They still have to perform as a company. This stuff doesn't make up for the company's performance, but this does help the stock price by including more investors. So ultimately, I think the people sing that this news is
meaningless, it doesn't change. Anything has no Fact, I think that's a very nearsighted and incorrect way to look at it. That's my thoughts on the subject. Hope you enjoyed. Fact, I think that's a very nearsighted and incorrect way to look at it. That's my thoughts on the subject. Hope you enjoyed.