A1 for Amazon

Date
19 May 2021

Dheepa

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  • Jan 20, 2019
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    What's really interesting to me about this bond issuance is the fact that Amazon technically doesn't need this money. According to the FT, the company is apparently sitting on about $33b in cash. So why raise debt anyway? Possibly for two reasons:
    1. Biden's proposal to increase corporate taxes (discussed here). One advantage for debt is that interest payments on the debt are tax deductible, meaning that the overall amount taxable under the higher tax rates then reduces.
    2. There seems to be quite a bit of concern over inflation at the moment. Inflation or the risk of inflation generally causes investor demand for bonds to drop, because there is a risk that the interest rate on the bonds cannot account for the increase in prices. From the company/issuer's perspective, the debt raised could be a good way to invest in long term fixed assets whose value would not necessarily corrode as pure cash would with the increase in inflation.
    Which brings me to my final point, it's going to be interesting to see what Amazon uses this additional cash to invest in. Last week we saw the $8b purchase of MGM studios by Amazon, possibly Amazon's ticket into developing a strong streaming service that rivals Netflix (interestingly enough it outbid other bidders by $3bn). Other successful ventures into new industries include the AmazonGo grocery chain. Looking forward to seeing what other industries the tech giant makes an entry into (apparently renewable energy and clean transport are on the table)

    On a side and completely unrelated note: The US Senate is set to debate whether Jeff Bezos's Blue Origin should be awarded an additional $10b NASA contract (effectively a bailout) - the original contract was won by SpaceX (Elon Musk's brainchild). Just thought the irony of a bailout for anything Bezos owns is well, interesting to say the least.
     

    Jacob Miller

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  • Feb 15, 2020
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    I think the debt issue from Amazon is really interesting here.

    As mentioned in the article, this is the second-largest debt issue this year... especially when Amazon are sitting on so much cash, this does seem like a really unusual decision.

    I agree with the position that taking advantage of what is essentially an 'issuer's market' in the face of a cheap debt market. Tax deductability is also almost certain a major consideration here too! I am intrigued as to where the funds raised are likely to be focussed: the MGM acquisition could, perhaps, be indicative of a more focused move into the film and entertainment space, competing with other market behemoths in a more meaningful way which will doubtless require substantial amounts of money thrown at building the necessary infrastructure.
    The electric car market also seems to be the hot thing at the minute, with Apple working on a car and Tesla's market share climbing at a rate of knots. Who knows - maybe Amazon will jump headlong into that market?

    As mentioned in the article, if we see an uptick in bonds issues then it's reasonable to expect that debt finance lawyers could see increased work. Similarly, as amazon move into more and more areas of the market, it will be interesting to see how competition and antitrust are dealt with should they arise.