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Amazon: What A Bond Deal

Jun. 04, 2020 9:02 PM ETAmazon.com, Inc. (AMZN)AAPL37 Comments
Bill Maurer profile picture
Bill Maurer


  • Company borrows $10 billion in six tranches.
  • Coupon rates come in lower than Apple's recent deal.
  • Shares top $2,500 for the first time.

When I previously covered internet retail giant Amazon (NASDAQ:AMZN), I mentioned how it seemed inevitable that shares would hit a new high rather soon. With sales booming during the coronavirus and investors banking on the growth of Amazon Web Services, I figured we could see shares top $2,500 at some point. That did recently happen, and this week, Amazon used this favorable investor sentiment to borrow a huge chunk of money at very low rates.

(Source: Yahoo Finance)

At the end of Q1, Amazon had a little more than $49 billion in cash and marketable securities on its balance sheet. The company also had more than $23 billion in long-term debt, along with $40 billion in long-term lease liabilities. Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations decreased to $11.7 billion for the trailing twelve months ending this March, as compared to $11.8 billion for the trailing twelve months ended March 31, 2019.

Despite that small decline, Amazon still produces a decent amount of cash. Of course, the current figure pales in comparison to technology giant Apple (AAPL) that generates 4 or 5 times that annually, which allows for the greatest capital return plan we've ever seen. However, I bring up Apple because it was just about a month ago where Apple itself borrowed $8.5 billion in new debt. In the table below, you can see a comparison of these two debt offerings.

(Source: Amazon prospectus, seen here, and Apple article, seen here)

Amazon borrowed $10 billion in total, $1.5 billion more than Apple, but this week's offering did have two extra tranches. What's interesting is that all four of Amazon's similar length bond issues had lower respective rates than Apple's did. Apparently, the market thought Amazon was very low risk. For instance, on the 3-year notes, Amazon is

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (37)

The credit market seems to be a better indicator than the stock market on the valuation of a company. Take for example Bear Sterns a week before they went belly up - Bear Sterns bonds were trading at junk level. Buyers of Amazon credit are indicating that Amazon is underpriced and that they are expecting capital gain on their bond holdings.
ChuckXX profile picture
Regarding the billions of new bonds from both AAPL and AMZ I really wonder if folks out there understand what will happen to the pricing of these bonds once interest rates start to rise which they eventually will do. I believe lots of Seniors as well as others will get a shock to their systems when that happens.
Matt GV profile picture
@ChuckXX I don't follow you. Institution/investors buying these bonds plan to hold them to maturity, no? They're not looking to make capital gains here. Buy the bond, collect the interest and then the principal, no?
Rob G. in Vegas profile picture
Institutional investors still have to mark those bonds to market when they value their portfolios. If interest rates rise, those investors will be showing enormous losses in their portfolios for years on their AMZN bond positions.

When that happens, they often eventually panic sell and take their medicine. Retail investors almost certainly will sell. There is no margin of safety buying these bonds at such ultra-low interest rates.

Any of the issues at 10-year and below already have negative real (after inflation) rates. Best of luck to anyone buying them.
ChuckXX profile picture
MattGV; I was referring to the individual investors that have bought AMZN, APPL, and Hershey bonds lately. All coupons 2.65% and lower.
Krypto profile picture
@Gary J Certainly if you have a risk adjusted return greater than the cost of funds on paper it makes sense but not everyone was positioned well enough for the pandemic stock market crash.
Gary J is Rich on AMZN profile picture

Invest in the business if this a real question.
Krypto profile picture
@Gary J I'm concerned that the opening of the economy will negatively impact the growth of Amazon.
Gary J is Rich on AMZN profile picture

Most shareholders will go with the genious CEO's decisions on managing growth. His 22 year track record has been, uh, pretty good.
Gary J is Rich on AMZN profile picture
I've done the same thing this whole century. Never pay off cheap mortgage money. Do the math on that money in FAAG instead. Made me stinking rich.
Alexander the Great II profile picture
Well finally I can agree with Bill Maurer. I buy a lot of stuff thru Amazon. Good service good price and good products. I am right now lying on some bed sheets I bought that were cheaper and better quality than Walmart. All Walmart locations in Houston are closing at 5pm due to social unrest. But Amazon still delivers. Stock price will keep going up.
Second posting:
This comes as no surprise since Bezos has a financial background, has good business acumen and is more innovated.
One thing Bezos has is a financial background, business acumen as well as being innovative so this comes as no surprise he managed a better deal.
Convexity Cowboy profile picture
Do you really think the CEO of a trillion dollar company would get involved in a measly bond deal? I even doubt the CFO was involved. This is what Treasurers are for. And 10bn is chump change to them.
Really? Sorry, Bezos may not micromanage is people but when it comes to finances, trust me he is on it.
Every informative. I am a follower. Can you tell me who is selling the amzn bonds?
they are available for prime members
Tarokh2020 profile picture
Bill, I have read your articles for years, thank you for the good work. But please tell me something, if Amazon is that good, how come the insiders including its top executives are selling very large volumes of stocks ? More than 2 million shares have been sold by the top executives in the C suite in last 3 months. Only 111K was bought by the insiders. I know all the people who own shares will get upset to hear that but there will be no increase in annual EPS. The annual EPS will be less than $18. So the price increase is just increasing the P/E ratio. Look for November to see Amazon is being traded in $1500s per share .
The most likely reason for this is that at Amazon employees aren't allowed to make a salary over a certain amount, I think that the highest income level is $130,000 per year. This means that most of ones income, especially at an executive level, comes from the sales of stock only. So, Amazon employees sell a lot of stock each year.

This is similar to wall street, where Jeff Bezos came from.
another reason could be diversification. If I were a higher manager receiving stocks I would have rebalanced my portfolio recently: AMZN shares are soaring lately while there are other stocks selling for huge discount, rebalance now seems logical
Gary J is Rich on AMZN profile picture

Some of us rich on AMZN learned about rebalancing a while ago. Learn when P/E matters for a stock and when it does not and may not for a very long time for a company with HUGE ongoing growth like Amazon.
moneymorality profile picture
Can you say "Free Capital" 😉
Money ain't for nothin and the chicks for free, or 50B.
So we’re in Dire Straits haha!!
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