NEW YORK (Reuters Breakingviews) - Amazon’s aggressive salesmanship now extends to its own debt. The e-commerce giant’s blowout $16 billion bond sale suggests almost unlimited potential for the retailing juggernaut to consider even more shopping. Yet in nearly tripling its financial obligations to buy brick-and-mortar Whole Foods Market, Jeff Bezos’ outfit is starting to look more traditional. The risk is that its stock will too.
Bezos built his online empire by investing cash flow back into the business and eschewing such conventional corporate-finance tools as debt and dividends. The result is a $472 billion goliath - the fifth-largest American enterprise by market capitalization - that has store owners and tech companies quaking over its ambitions.
Amazon could have financed the Whole Foods deal by issuing stock with only minimal dilution to his 16.6 percent stake. But like Tesla’s Elon Musk did last week, Bezos took the cheap money available in the fixed-income market. Investors submitted nearly $47 billion in bids, and the company was able to sell its paper at razor-thin margins, including a premium to comparable U.S. Treasuries of just 1.45 percentage points for $2.25 billion of 40-year bonds. A need for yield and a belief that Amazon will triumph from the retail shakeout it is provoking created a powerful cocktail.
The deal will nearly triple Amazon’s outstanding debt, to a little over $23 billion. That’s about a billion less than the consensus estimate for 2018 EBITDA. Given the company’s cash pile, net debt will be even lower at under $10 billion. That leaves the under-leveraged Amazon with enough financial firepower to consider acquisitions that would make Whole Foods look like an appetizer.
Whether that would be good for the company’s stock is less clear. Belief in the Bezos vision has pushed Amazon shares up nearly 31 percent so far this year, and they are trading at 120 times 2018 estimated earnings as calculated by Eikon. Wal-Mart Stores, by contrast, fetches 17.6 times earnings. As Amazon begins to more closely resemble peers both in its physical footprint and its balance sheet, that gap will inevitably narrow.
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