American multinational technology company is again looking to increase shareholder value via stock buyback and stock split initiative.

On Wednesday the company announced that it has received approval from its Board of Directors to move ahead with a $10 billion buyback of the Company’s common stock.

A share buyback refers to the repurchasing of shares of stock by the company that issued them. It usually represents an alternate and more flexible way of returning money to shareholders.

In this instance Amazon disclosed that the share repurchase authorization allows the Company to repurchase its shares opportunistically from time to time when it believes that doing so would enhance long-term shareholder value.

The repurchase authorization does not have a fixed expiration. Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing.

This stock repurchase authorization also replaces the previous $5 billion stock repurchase authorization, approved by the Amazon Board of Directors in 2016, under which the Company had repurchased $2.12 billion of its shares.

Amazon is among a few other tech companies that have initiated stock repurchases including Google and Apple.

Google through its parent company, Alphabet aggressively bought back a record $12.8 billion in the second quarter last year. At the same time, just earlier this year, Apple spent $85.5 billion to repurchase shares.

To put things into context, share buybacks can create value for investors in a few ways: The same earnings pie cut into fewer slices is worth a greater share of the earnings, repurchases return cash to shareholders who want to exit the investment, With a buyback, the company can increase earnings per share.

A company can bring about an increase in its stock value by creating a supply shock via a share repurchase but it’s important to note that the repurchase doesn’t affect the fundamental value of the stock. In fact in terms of finance, buybacks can boost shareholder value and share prices while also creating a tax-advantageous opportunity for investors.

The decision taken by Amazon is a signal that the Company’s management is confident about the strength of the business.

In the meantime, the Board of Directors of Amazon also approved a 20-for-1 split of the Company’s common stock to be effected through an amendment to the Company’s Restated Certificate of Incorporation. The Amendment will also effect a proportionate increase in the number of shares of authorized common stock.

Stock splits can improve trading liquidity and make the stock seem more affordable.

Amazon said the goal is to make its shares more accessible for retail traders. The Company said it also gives employees more flexibility in how they manage their equity.

This particular stock split and the proportionate authorized share increase are subject to shareholder approval of the Amendment at the 2022 Annual Meeting of shareholders which are scheduled to take place on May 25, 2022.

Subject to shareholder approval of the Amendment, each Company shareholder of record at the close of business on May 27, 2022, will have 19 additional shares for every one share held in their accounts on or about June 3, 2022. Trading is expected to begin on a split-adjusted basis on June 6, 2022.

Amazon stock, which currently trades near $2,910, will drop to about $139 a share when the split kicks in.

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