Amazon Addendum

In my last post I pointed out two things regarding AMZN:

1) It appeared as if AMZN had dropped capital spending below the rate of depreciation, and...

2) Their R&D spend had ramped up dramatically. I also pointed out that if this R&D spending were capitalized and written off over three years then the company still isn't very profitable, they really aren't growing and their returns on investment were probably non-existent.

I used these two items as an example of what the central bank policy of ZIRP has brought us. There isn't any way to earn a return on your invested capital and many businesses, AMZN excepted, are giving up.

My perusal of AMZN's balance sheet was where I picked up (1) above, A friend has since pointed out that AMZN is now heavily using a form of capitalized leasing for much of its capital spending. The result is that the line item for this doesn't appear separately in their cash flow statement, but the equipment does show up in their balance sheet. The lease payments for this run through the income statement. In short, AMZN's capital spending is far higher than what their cash flow statement reveals.

Obviously, this makes (1) above untrue.

Unfortunately, for AMZN shareholders, this means that AMZN's return on investment is substantially below what I assumed in my previous post. AMZN's R&D and incremental capex spend is higher than what I had assumed and this is further pressuring their ROI.

 Disclaimer: Nothing on this site should be construed as investment advice. It is all merely the opinion of the author.