Is Amazon.com, Inc. (AMZN)’s $5 Billion Stock Buyback Plan Just an Illusion to Make Shareholders Happy?

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Amazon.com, Inc. (NASDAQ:AMZN) shares are trading up today, more than likely because of a newly authorized $5 billion share buyback plan. However, while investors seem quite happy of this news, one must question the motivation of such.

What is the purpose of the buyback? It’s not as if Amazon.com, Inc. (NASDAQ:AMZN) has a plethora of cash on their balance sheet, at least not that which isn’t cancelled out by debt. Additionally, the buyback plan has no expiration date, meaning that the company could feasibly use it as they choose. There was already a $2 billion buyback plan in place so this ups the ante by 250%, while allowing the company to reduce some dilution, and putting more of the company into the hands of current investors.

The question, however, remains if this is really the best option for long term success. You never now what a market will bring in the future, and the last thing anyone would want is for Amazon.com, Inc. (NASDAQ:AMZN) to decide they need to take on more debt to continue running things. Buying back shares, essentially increases debt, in that they have less cash to work with for future endeavors. In the long run we will see if this move was a good one, but until then, I’m not all that sure that it’s a benefit to shareholders.

The stock is up 1.54% or $7.54 following the news, hitting $498.02 per share. About 5.27M shares traded hands. AMZN has risen 14.14% since July 8, 2015 and is uptrending. It has outperformed the S&P500 by 23.62%.

From a total of 30 analysts covering Amazon.com (NASDAQ:AMZN) stock, 26 rate it a “Buy”, 0 a “Sell”, and 4 a “Hold”. This means that 87% of the ratings are positive. The highest target price is $900.0 while the lowest target price is $525. The mean of all analyst targets is $727.45 which is 46.07% above today’s ($498.02) stock price. Amazon.com was the topic of 79 analyst reports since July 21, 2015 according to the firm StockzIntelligence Inc. UBS maintained shares on January 29 with a “Buy” rating. Credit Suisse maintained shares with a”Outperform” rating and a $800 target share price in their report from a January 19. Mizuho maintained AMZN stock in a recent report from January 29 with a “Buy” rating. Susquehanna initiated the rating on January 18. Susquehanna has a “Positive” rating and a $900 price target on shares. Finally, RBC Capital Markets maintained the stock with a “Outperform” rating in a report they issued on a January 29.

The institutional sentiment increased to 1.49 in Q2 2015. It’s up 0.37, from 1.12 in 2015Q2. The ratio increased, as 67 funds sold all their Amazon.com, Inc. shares they owned while 376 reduced their positions. 166 funds bought stakes while 493 increased their total positions. Institutions now own 325.29 million shares which is 4.94% more than the previous share count of 309.99 million in 2015Q2.

Huntington Steele Llc holds 23.61% of its total portfolio in Amazon.com, Inc., equating to 103,872 shares. Tiger Global Management Llc owns 3.19 million shares representing 20.13% of their total US portfolio. Moreover, Tybourne Capital Management Hk Ltd has 18.16% of their total portfolio invested in the company, equating to 504,001 shares. The Washington-based Brighton Jones Llc has a total of 17.93% of their portfolio invested in the stock. Telemark Asset Management Llc, a Massachusetts-based fund reported 100,000 shares owned.

Since May 4, 2015, the stock had 0 buys, and 9 insider sales for a total of $25.00 million in net activity. Stonesifer Patricia Q sold 6,250 shares worth $3.16M. Wilke Jeffrey A sold 5,908 shares worth $3.16 million. Reynolds Shelley sold 720 shares worth $381,752. Olsavsky Brian T sold 2,098 shares worth $1.11M. The insider Zapolsky David sold 2,322 shares worth $1.23 million.

Amazon.com, Inc. is an e-commerce company. The company has a market cap of $238.58 billion. The Firm sells a range of services and products through its Websites. It has 401.58 P/E ratio. The Company’s products are offered through consumer-facing Websites, which include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers.