Amazon.com (NASDAQ:AMZN) announced plans to make a $200 million debt payment today that surely sent shivers up the backs of longtime Amazon critics, only adding to the shivers they experienced earlier this week when the company announced a profit.
Bears have argued since 1997 that Amazon would (1) never earn a profit and (2) drown in debt, being unable to pay it off. Bezos and Co. are proving smarter than the naysayers, growing Amazon into a company with more than $1 billion in quarterly sales and profits even during the slower summer months.
Fresh on the heels of net income, on Nov. 24 the company will redeem $200 million in principal on its 4.75% convertible note debt, issued in 1999 and due 2009. Amazon will pay 102.85% of the original issue price, plus interest going back to August. The note debt was convertible to stock at $78 per share, well above today's $54.
The company will continue to hold $1.05 billion in convertible debt after the payment, which accounts for half its total $2 billion in long-term debt. Amazon has more than $1 billion in cash, equivalents, and marketable securities, and earns free cash flow, albeit only slightly in quarters outside the fourth.
Although the giant retailer has an accumulated deficit of $3 billion over its operating history as well as a shareholder deficit of $1.1 billion, Standard and Poor's rating service upped Amazon's outlook to "positive" yesterday and reaffirmed its corporate "B" credit rating. Profitability goes a long way to calm fears of defaulting on debt. The stock remains a high-risk investment (especially at these elevated prices), but has awarded high returns to early risk takers, rising 170% this year.
Amazon was recommended in Motley Fool Stock Advisor's October 2002 issue at about $15 per share.
