Moody's acted because CEO Jeff Bezos wants to raise debt to keep investing capital in operations. Amazon's capital expenditure budget, or CapEx, has grown over four times lately, to levels last seen in 2012. This has helped cut free cash flow by more than half, to just $1.08 billion.
Bezos has always run Amazon's financial engines at full throttle, but the failure of the Fire Phone helped bring the stock down below $300/share recently. I urged investors to buy at those levels and the stock rose about 10% - it has given almost half that gain back in the last two trading sessions.
Paulo Santos, who is ranked number one here at Seeking Alpha on articles about shorting stocks, has been extremely bearish on Amazon this year. He agrees with Alibaba (NYSE:BABA) founder Jack Ma that Amazon may not be around in 20 years. He sees the media sales "core" of the company dying - physical books, CDs and DVDs aren't moving there as they're not moving anywhere. He has (correctly) called Amazon out on Twitch and the Fire Phone. He didn't mention, but could have, the fact that Amazon has recently had to back away from its plans for same-day grocery delivery.
How could I disagree with such a sage? It's because I believe in infrastructure. Amazon has better back-end infrastructure than any other player in e-commerce. It can, and does, actually make money from other online merchants, handling financial and delivery functions so they can focus on marketing. Amazon sells more cloud infrastructure than anyone - more than Google (NASDAQ:GOOG) (NASDAQ:GOOGL), more than IBM (NYSE:IBM) and more than Microsoft (NASDAQ:MSFT). The last two claim to be bigger because they include software platform and rental sales in their cloud revenue estimates. Amazon's money all comes from base level infrastructure.
Thus, we have different time horizons. Paulo is right that Bezos and his team are facing significant challenges right now. But inside every problem is an opportunity for the team to get things right, and the infrastructure lead gives it the time and space to do that. I happen to believe this Christmas will be better for Amazon than many predict - because it is looking good for everyone. That should cause a pop in the stock when earnings are announced next month, along with a host of stories once again proclaiming Bezos a genius.
I don't think Jeff Bezos is a genius. I think he's an entrepreneur with a long-term view, who understands that the Internet is transforming both computing and commerce, centralizing it as never before, inside scaled data centers and warehouses. He has invested heavily for both those opportunities, and while there are other companies involved in all the areas where Amazon is presently strong, none has the strength in depth Amazon has where it counts - infrastructure.
Feel free to disagree, but I think Amazon stock just went on sale again. If you want to get your kids or grandkids into investing, consider giving them a share. Print your own stock certificate and put it in a card. It may be the best bargain on the Amazon site, so even if Paulo is 100% right while I'm 100% wrong, what a great story it will make years from now.
Disclosure: The author is long AMZN, GOOG, GOOGL.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.