Amazon’s Charm Offensive Needs to Expand

The new buyback plan worth $10 billion replaces a $5 billion plan from 2016. That original plan went unused until Amazon started buying back shares in January. The company said in its filing Wednesday that it has since repurchased about $2.1 billion worth of its own stock, which has been in a deep slump over the past year.

Meanwhile, a 20-for-1 split would make Amazon’s shares more accessible to the growing base of retail investors and allow more flexibility for its own employees, now numbering more than 1.6 million, to manage their equity in the company. It also could make the stock, which has spent most of the last 12 months above the $3,000 range, a candidate for inclusion in the Dow Jones Industrial Average. If enacted now, the split would put Amazon’s share price just below the current median of the price-weighted index.

Google-parent Alphabet announced a similar split in February, and the two, with a combined market value of $3.2 trillion, are the largest U.S.-based public companies not currently members of the Blue Chip index.

Taken together, Amazon’s latest moves constitute “one part in a series of increasingly shareholder friendly actions,” according to Brian Nowak of Morgan Stanley. The company recently raised the price of its Prime service and began breaking out financial details of its advertising business, which generates more than $31 billion a year in revenue.

John Blackledge, an analyst at Cowen, noted that the buybacks “could also signal that (Amazon) has already entered the downslope of its historic investment cycle,” potentially leading to improved earnings and cash flow ahead. Amazon shares rose 5.4% on Thursday despite a selloff across the market.

Amazon has long eschewed typical methods of appealing to Wall Street, as founder and longtime Chief Executive Officer Jeff Bezos often maintained that a focus on customers and maximizing free cash flow serves investors better over the long term. And he was as good as his word; Mr. Bezos even shunned Amazon’s quarterly earnings calls from 2009 through when he handed the CEO reins to successor Andy Jassy last July.

Mr. Jassy has had a rough welcome. His appointment coincided with a sharp deceleration in sales growth as Amazon came off the boom it enjoyed at the start of the pandemic. Meanwhile, a burst of new investments to enable services such as one-day delivery has pressured Amazon’s operating margins at a time when investors have been bailing out of riskier stocks deemed to lack earnings leverage.

Even with Thursday’s bounce, Amazon’s share price is down 13% from when the CEO transition was announced last February. Big tech peers Microsoft and Apple have averaged an 18% gain in that time, while the S&P 500 has risen 11%.

A more shareholder-friendly Amazon could help turn that sentiment, especially as the company enters a slower-growth phase more befitting an enterprise about to pass $500 billion in annual sales. But Mr. Jassy also needs to figure out how to carry that sentiment over to Washington, which has taken an especially dim view of Amazon of late. The Wall Street Journal reported Wednesday that the House Judiciary Committee sent a letter to the Justice Department seeking an investigation into Amazon for a potentially criminal obstruction of Congress, a move not taken against other tech giants that are being investigated by lawmakers for alleged anticompetitive behavior.

Amazon, which denies the claim, is aiming to clear its purchase of MGM with Washington soon and presumably wants the option to do more deals as cloud rivals Microsoft and Google pursue transactions of their own. Getting to that point may require something even $13 billion can’t buy—charm.

Write to Dan Gallagher at [email protected]

Corrections & Amplifications
Amazon’s new $10 billion share repurchase plan replaces a $5 billion plan approved in 2016. An earlier version of this article incorrectly said that the new plan adds to the older one. (Corrected on March 11)