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Here's Why The Change To Amazon's Share Repurchase Program Was Such A Big Deal

Laura Brodbeck

Shares of e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) gained nearly 3 percent over the past 24 hours as investors cheered a decision by the board to up the company's share buyback program.

Such a move leaves the door open for the firm to spend more on repurchasing shares, something that will likely drive Amazon's stock higher in the coming year.

The Change

On Wednesday, the company's board disclosed a regulatory filing showing that it had more than doubled Amazon's previous $2 billion share repurchase program, which was released in 2010. Now, the firm is able to spend $5 billion per year on buybacks, a shock to investors as the company didn't even meet is $2 billion cap in 2015.

Related Link: Amazon Hikes Buyback To Billion

Why Increase Buybacks?

As Amazon didn't buy back the full number of shares allowed under the old repurchase program last year, some wondered why the company would expand its buyback program this year. Many believe the reason for the new program lies in the stock's heavy discount. Amazon shares have fallen more than 25 percent since the start of the year, making them more attractive to buyers. If there was ever a time to increase its repurchase program, it's now.

Growth A Factor

Over the past year, Amazon has proven that it is capable of increasing profits while growing exponentially with its 2015 results. Last year, Amazon's operating income rose from $178 million to $2.2 billion, while free cash flow grew by 276 percent. Those figures bode well for the company's future success, making the pullback in its share price a good opportunity to invest.

Image Credit: By Joe Mabel, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=46644200

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