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In a move that I saw coming, (NASDAQ:AMZN) is reportedly getting ready to issue debt. The last time issued debt was in the bygone dotcom year of 1999.

Ever since 2010, has been on a steep earnings decline brought about by increased costs and competition, as well as some ill-advised moves like giving free video to its existing Prime membership. Also,'s increased investment, especially in fast-depreciating AWS assets, had a severe earnings impact. The chart below tells the whole story.

AMZN EPS Diluted TTM Chart

AMZN EPS Diluted TTM data by YCharts

Less well-known, was's liquidity situation. Through a combination of decreased profitability, higher working capital needs and substantial capital outlays,'s liquidity cushion has seen a severe deterioration. Couple that with's acquisition of its headquarters, and the stage was set for to take the initiative to issue debt. The chart below illustrates how's current ratio has fared, bringing about the inevitability of this debt issuance.

AMZN Current Ratio Chart

AMZN Current Ratio data by YCharts

A major doubt

A major doubt regarding the incoming debt issuance, will be whether it will have a conversion feature. This is very significant for shareholders. If the debt carries a conversion feature, the stock is certain to get hit, due to arbitrage between buying the converts and shorting the common. However, at this point there's still no information regarding this characteristic.

On the other hand, against all odds, has enjoyed endless analyst support. has disappointed analysts consistently for about 2 years straight, and has seen its earnings estimates plunge by 80-90% during that timeframe, to the point where amazingly 2012 is now expected to show a whole-year loss.

I say against all odds, because much cheaper stocks would have been slaughtered if subjected to such a turn of events. wasn't, the support never went away. Part of the reason is that's growth history can still credibly be "sold". But another part is consubstantiated just in the kind of event that a debt issue represents - an opportunity for investment banking commissions.

Conclusion already had debt in the form or operating leases, so having debt is not exactly new.'s need to issue straight debt is just one more step in the long road of fundamental deterioration that has been on in ever since 2010. For now, and in terms of short term impact, what is more relevant for shareholders is whether the debt will have a conversion feature or not, since if it does the negative impact on AMZN shares will be mechanical from the associated short selling.

In any instance, remains brutally overvalued and its fundamental trajectory remains deeply negative. issuing debt is just one more clue as to how this impending submarine is taking on water.

Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.