Amazon Calls the Market Bottom (AMZN)

Amazon Calls the Market Bottom

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I think Amazon.com (Nasdaq: AMZN ) just called the market bottom.

Not in so many words, of course, but actions always speak louder than press releases anyway. The online retailer and rising cloud-computing star is using some of its $3.7 billion of cash equivalents to pay off some of its outstanding long-term debt securities.

240 million Euros of convertible notes stand between Amazon and a virtually debt-free balance sheet today. A rising dollar has lowered the dollar value of that debt from $358 million at the end of 2007 to a svelte $307 million today. No bondholder in their right mind will convert these papers into stock -- that would be like paying $108 for a stock that's trading at less than $64. So in the future, Amazon's diluted share count will be very close to the plain old "shares outstanding." Let's hear it for anti-dilution!

The timing of this early repayment has me thinking that Jeff Bezos and his crew feel the market bottom getting closer -- close enough to pay off this last chunk of debt.

Replacing this borrowed capital with a new loan sure wouldn't be easy these days, when you can get shares of Bank of America (NYSE: BAC ) or Citigroup (NYSE: C ) for less than a decent cheeseburger. So this payoff tells me that a) Amazon ain't planning anything big and expensive at the moment, and b) management doesn't think that the debt would get any cheaper if they waited a bit longer.

In other words, this inveterate management team can't imagine that the dollar would get much stronger than it is today. That's tantamount to calling a market bottom. When the economy suffers from a credit freeze and low liquidity, which sounds a lot like the current situation, you worry more about deflation than inflation -- so the dollar should be at its strongest when the night is at its darkest.

Now, I'm not comparing Jeff Bezos to economic oracles like Berkshire Hathaway (NYSE: BRK-B ) chief Warren Buffett or Nobel laureate and macroeconomics expert Edward Prescott. But I'm pretty sure he's got more market insight in his pinky toe than what all of Keanu Reeves could muster. Maybe it's time to crawl out of our gold-lined bomb shelters and start buying some stock.

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Berkshire Hathaway is a Motley Fool Inside Value selection. Berkshire and Amazon.com are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On February 26, 2009, at 3:08 PM, imalost wrote:

You guys love pumping Amazon and anything they do is shown in a positive light and roses thrown at them. Could it be that since Amazon has a problem making money, their EPS growth this year will be zero or negative and they are desperate to increase the bottom line since their margins are getting squeezed through intense competition. That they decided to save the interest on the debt to boost the bottom line and finance themselves through their vendors. Their A/P turnover did increase to 62 days in the last quarter. Amazon always comes up with ways to distort reality and their bottom line and you guys go for it hook line and sinker or simply choose to ignore it. Bottom line Amazon at 43 times thi year earnings is overvalued when growth is decelarating.
Report this Comment On February 26, 2009, at 3:15 PM, lesley888 wrote:

Another way to look at this...Bezos and crew may see this as the highest the US dollar will get against the euro. When (not if) the USD collapses under the weight of government debt, the euro could be a heck of a lot pricier.
Report this Comment On February 26, 2009, at 3:53 PM, imalost wrote:

Could be, but its not a positive as the articles states. But then again what do you expect from Motley Fools, they love a retailer with a PE of 45 in a depression, great advice.
Report this Comment On February 27, 2009, at 12:46 AM, suzylucy wrote:

Let me say upfront imalost, that I'm not trying to be confrontational here, but I can't help but ask you: if you have such a low opionion of the Motley Fool, why are you on their site?
I'm a huge fan of getting other people's opinions and insights even if they do disagree with my own. After all, I already KNOW what I think. I look to this site and others for insights into why I may be correct OR incorrect in my assumptions/opinions.
It seems counterintuitive for someone who dislikes/disrespects MF to even be on the site. I'm sure you have a reason, but was curious if you'd be willing to share it? Thanks in advance for hearing me out.
Susan
Report this Comment On February 27, 2009, at 11:43 AM, imalost wrote:

Because they have some hidden agenda with Amazon and continuously mislead their readers and never report the facts as they are or omit important information to shed a better light on the company. By me posting the readers can do further due diligence on this company and make a sound investment decision based on all the facts not the distorted ones posted on MF. MF needs to pump Amazon on a daily basis I find that intriguing. Many investors can and will get hurt if someone does not point out that the information their getting is not totally correct.
Report this Comment On February 27, 2009, at 11:46 AM, imalost wrote:

By the way in 2001 Amazon was sued for issuing misleading financial statements. Have they changed ?

updated 1 hour ago Sponsored by:
	DOW	12,801.23	-89.23	-0.69%
	S&P 500	1,342.64	-9.31	-0.69%
	NASD	2,903.88	-23.35	-0.80%

AMZN	$185.54		+0.56	+0.30%
Amazon.com		CAPS Rating:

C	$32.93		-0.74	-2.18%
Citigroup Inc		CAPS Rating:

BRK-B	$78.79		-0.41	-0.52%
Berkshire Hathaway		CAPS Rating:

BAC	$8.07		-0.11	-1.34%
Bank of America Co…		CAPS Rating:

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Amazon Calls the Market Bottom

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Comments from our Foolish Readers

Report this Comment On February 26, 2009, at 3:08 PM, imalost wrote:

Report this Comment On February 26, 2009, at 3:15 PM, lesley888 wrote:

Report this Comment On February 26, 2009, at 3:53 PM, imalost wrote:

Report this Comment On February 27, 2009, at 12:46 AM, suzylucy wrote:

Report this Comment On February 27, 2009, at 11:43 AM, imalost wrote:

Report this Comment On February 27, 2009, at 11:46 AM, imalost wrote:

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