Will Amazon’s stock split land it in the Dow Jones Industrial Average?
Yahoo Finance Live's Julie Hyman and Brian Sozzi discuss whether Amazon could join the Dow Jones Industrial Average after the tech giant joined peers Apple and Alphabet in announcing a stock split.
Video Transcript
- Well, ahead of the opening bell this morning, we are watching Amazon, especially since it's bucking the overall downtrend that we are seeing in the futures here this morning. As we've been talking about, the company announcing a 20 to 1 stock split, and also authorizing a $10 billion buy back. Those shares moving up more than 5% in pre-market trading now. As we were talking about a little bit with Emily Roland, and as we've seen from analysts as well, they viewed the stock split as mostly sort of symbolic here, that Amazon says the stock is potentially a good value, which is also communicated by the buyback.
But Brian Nowak, though, over at Morgan Stanley points out that the split is more symbolic than material. He says the buyback is potentially a bigger deal here. And then in the past, although it was a long time ago now, when Amazon did buybacks, the stock ended up going up a lot after it made that kind of a move. So we'll see if we see a similar move this time around, Sozz.
- Well, here's the signal, Julie. If Amazon was still investing at the rate they were last year, Amazon would not be out here, I would argue, this morning saying it's going to repurchase $10 billion of its stock. So it is also them-- I think the Street is right, Amazon sending that signal that we are, in fact, going to pull back a little bit here on how much we are spending to boost our profits. Ultimately, a good sign. But Julie, I have a story right now up on the Yahoo Finance home page looking at this Amazon stock split. And it may ultimately get Amazon into the Dow.
Now, this is a notoriously arbitrary process. It is decided by S&P and the "Wall Street Journal" who goes in there. The last two names last year that entered the Dow were Salesforce and Honeywell. So it's no indication that this stock split means Amazon is going in there and they're going to join Apple in the Dow and the stock will go up. But still, it's something to watch moving forward because if it does go into the Dow, that would obviously be pretty bullish for the stock.
- Right. Because, just to refresh people's memories, there are various index funds that benchmark against the Dow. So they would automatically then have to add shares of Amazon if it got added. And then there's also just the psychological effect of it being added to that index, which is not insubstantial. When we look at the share split thing, just a quick note on this. Share splits, and I think we've noted this when we've gotten some recent share split announcements from big tech, they've become pretty rare. We see fewer and fewer of these that have happened. There were only two, for example, in 2019. I'm giving you a history lesson again.
- Professor Hyman.
- There were 47 of them if you go back to 2006 and 2007. So we've seen them dwindle. But obviously, they can be sort of, again, a powerful psychological tool when they end up happening, Sozz.
- Yeah. And I also encourage everyone-- our very own Brian Cheung did a really great Yahoo U on what stock splits are. Please do give it a search. Look it up. It's really helpful understanding why this process plays out. But Julie, look, big tech has to do something. We've seen an incredible rise in the number of retail investors in this market the past few years. These investors have not been able to necessarily get into these stocks here because of the high prices. Now perhaps they could.
