Amazon (NASDAQ:AMZN) has lost one-quarter of its value during the current bear market, opening for trade Jan. 3 at about $1,500 per share. Nothing has changed at the company to justify the fall in Amazon stock. The market has simply readjusted, and the fashions have changed. Growth is out. Value is in. Brokers are wearing their faces longer this year.
The fall has given Amazon stock a more traditional look, at least for analysts. It has a price-to-earnings multiple, for one thing. At 86, it’s steep, but sales are still growing at almost 30%, year-over-year, and net income has exploded to $7 billion in just the first three quarters of 2018.
AMZN stock investors are now paying less than 30 times operating cash flow of $26 billion, the number Amazon itself focuses on in its earnings report.
Despite the fall in AMZN stock and despite the market’s fall, things are actually good at Amazon, and the country needs to hear that.
Why Amazon Stock Should Split
That’s why the best thing Amazon could do for itself right now is to do a 10:1 stock split.
I know splits are artificial constructs. They don’t create real value. But they do reduce volatility. Amazon shares are routinely rising $40 or falling $40 in a single day, which makes small investors nervous. Amazon is becoming a stock for small investors: people who buy and hold for years, if not decades. Split the shares 10:1 and they’re only going up $4 or dropping $4 in a day — a move of just 2.4%. People won’t be so nervous about Amazon stock.
This is what Apple (NASDAQ:AAPL) did in 2014. It went through a 7:1 stock split that has made the shares less volatile for retail investors. Its fall of 37% since its October peak brings its opening price to $144 per share, a level you can trade at. Amazon and Apple have nearly identical market caps right now, each at about $750 billion.
A split would also show that Amazon has matured. It’s no longer the go-go stock it was five years ago, when it was trading at under $300 per share. It can take its place in the country’s business elite. It can join the Dow 30.
AMZN Defining the Economy
It’s important that Amazon stop playing by its own rules, because the market needs a ruler. The “Cloud Czars,” which along with Apple and Amazon include Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB), now control the bulk of the world’s telecommunications infrastructure. Their networks run the world’s data. Their data centers store its TV shows and movies. Their systems define its economy. Clouds are at the heart of all computing.
This is the economic change that has defined the last decade, the transformation of commerce into the virtual realm, the movement of economic power into a smaller number of hands — the centralization of everything.
The Cloud Czars will also define what comes out of the present economic despair. Their plan is for an Internet untouched by human hands, in which machines have the intelligence to know when they’re broken, how they can serve, and where people specialize in “soft skills,” high-end intellectual organizing, rather than the hard skills of pushing papers or even coding.
The Bottom Line on AMZN Stock
At the start of the latest recovery, in 2009, Amazon stock and its cloud rivals were a corner of the technology sector. Today, they are the center of economic and political power. They’re essential ingredients in any portfolio. They should all have a lot more than a half-billion shares outstanding, which is all Amazon stock has.
It’s time for AMZN stock to take its rightful place. That’s what its move of offices to Washington D.C. and New York really represent. That’s what a stock split would represent as well.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL, MSFT and AMZN.
