Amazon (AMZN) has $41.25 billion in cash at its disposal. In detail, Amazon reported $31.75 billion in cash and equivalents and $9.5 billion in short-term investments on December 31, 2018.
Hence, Amazon (NASDAQ: AMZN) had $41.25 billion in the bank at the end of 2018. Thus, Amazon’s cash hoard exceeds the market capitalizations of several of its most prominent competitors.
First, Dollar General (NYSE: DG) had a Market Cap of $30.72 billion on 11 February 2019. Second, Target (NYSE: TGT) had a market cap of $36.51 billion on the same day.
Third, Macy’s (NYSE: M) had a market capitalization of $7.783 billion on February 11, 2019. Finally, Kroger (NYSE: KR); America’s largest standalone grocer, had a market cap of $22.149 billion on 11 February 2019.
Amazon could buy Macy’s, Dollar General, Kroger, or Target for cash
Consequently, Amazon could buy Target, Macy’s, Dollar General, or Kroger for cash.
In fact, Jeff Bezos could buy both Dollar General and Macy’s or Kroger and Dollar General at once. Bezos can make such a purchase because Amazon (AMZN) has $41.25 billion in cash.
However, it is unlikely Bezos will make such a move because of the political consequences. I think Amazon will face anti-trust actions, presidential actions, and potentially legislation in Congress if it made such acquisitions.
Amazon’s (AMZN) Cash is growing fast
On the other hand, Amazon’s cash is growing fast. For instance, Amazon reported $28.425 billion in cash and equivalents and $9.34 billion in short-term investments on 30 September 2018.
Thus Amazon’s cash grew by $11.485 billion in just three months. In fact, Amazon had $29.765 billion in the bank on September 30, 2019. Hence, Amazon could be able to buy both Target and Dollar General for cash in May 2019.
I think cash is the real source of Amazon’s power and it is growing dramatically. For instance, Amazon’s operating cash flow grew from $8.588 billion in 3rd Quarter 2018 to $16.477 billion in 4th Quarter 2018. Additionally, Amazon’s free cash flow grew from $6.061 billion in 3rd Quarter 2018 to $13.357 billion in 4th Quarter 2018.
Amazon is becoming the Perfect Cash Investment
Therefore, I think Amazon is becoming the perfect cash investment, but how does it do on other financials.
Notably, Amazon reports a gross profit of $27.597 billion for 4th Quarter 2018. In addition, Amazon records an operating income of $3.786 billion and a net income of $3.027 billion for 4th Quarter 2018.
Impressively, Stockrow bases those numbers on 4th Quarter revenues of $72.383 billion that grew at a rate of 19.73%. Finally, Amazon records a gross margin of 38.13% for the 4th Quarter 2018.
Therefore, Amazon is now a very profitable company when measured by traditional value investing parameters. However, Amazon (AMZN) is not a traditional retailer or company.
Why other Retailers cannot compete with Amazon
I think the current financial numbers indicate other retailers cannot compete with Amazon.
For instance, Target records $17.821 billion in revenues and $825 million in cash and equivalents for 4th Quarter 2018. In addition, Target records an operating cash flow of $900 million and a negative “free cash flow” of -$93 million for the same period.
Hence, Target only has $825 million in extra cash, while Amazon has $41.25 billion to play with. Thus, Amazon’s business model is superior to Target’s.
Notably, Target needs to operate 1,850 stores and 39 distribution centers in the United States to accumulate $825 million. Not surprisingly, Target is closing six stores in February 2019, Bizjournals reports.
How Amazon (AMZN) makes more money than Target
One reason Target cannot compete with Amazon is that it only makes money when customers walk in and buy.
On the other hand, Amazon generates vast amounts of float and sales through Amazon Prime. Specifically, Amazon charges each regular Prime member $119 a year.
Incredibly, Statista calculates average Amazon Prime customer spends $1,400 a year at the Everything Store. In contrast, non-prime members spend $600 a year at Amazon.
Thus, Jeff Bezos has figured out how to charge customers the privilege of spending more money at Amazon. Hence, Bezos is the greatest retail genius in human history.
Does Amazon own Middle-Class Shoppers?
Amazon Prime threatens retailers like Target because it locks the most affluent and active customers into buying from the Everything Store. Hence, Amazon is monopolizing the business of middle-and upper-class customers.
Therefore, retailers like Target, Walmart (NYSE: WMT), and Dollar General could soon compete only for the business of the poor and uneducated. Meanwhile, those with money and education will do most of their shopping at Amazon.
Amazon owns middle-class shoppers because it obligates them to purchase from its website with Prime subscriptions. To explain, a person who spends $12.49 for Prime each month will buy from Amazon to justify that spending. Just as many people shop at Costco Wholesale (NASDAQ: COST) to justify the club store’s subscriptions.
How Amazon Threatens Everybody even McDonald’s and Starbucks
Moreover, Amazon makes Prime desirable with fast-delivery, streaming video, easy returns, and a vast inventory. Plus, Amazon is adding products like groceries, takeout meals, and appliances to Prime. If that was not enough, Amazon is researching the possibility of offering prescriptions.
Hence, Prime is now a threat to supermarkets like Kroger, takeout services like GrubHub (NYSE: GRUB) and potentially eateries like McDonald’s (NYSE: MCD). Amazon could threaten McDonald’s by cooking meals at its Whole Foods Market stores and having Amazon Restaurants deliver them.
Nor is it McDonald’s that is in Amazon’s sights. Amazon even threatens Starbucks (NASDAQ: SBUX) with its Go cashier-less convenience stores. Go threatens Starbucks because it sells coffee and a wide variety of prepared foods.
How Amazon can make Money from Go
A major threat to Starbucks will be Amazon offering Prime members discounts on coffee from Go and Whole Foods. A greater menace will be Prime delivering coffee and meals from Amazon Go.
I think Amazon will offer coffee delivery because Starbucks claims it makes 2.5 more from delivery orders, CNBC reports. Hence, the combinations of Amazon Restaurants and Go and Amazon Restaurants and Whole Foods will be lucrative.
Therefore, Amazon could enter one other high-price business through Go. An obvious money maker will be to get business customers to order both coffee and office supplies through Go. Notably, Amazon has $41.25 billion in cash to spend on Go.
How Amazon can Destroy Starbucks (SBUX)
In addition, Amazon can make more money by delivering coffee with meals from Amazon Restaurants and Whole Foods. Thus, I think Amazon could wipe out much of Starbucks’ business quickly.
Not coincidently, former Starbucks CEO Howard Schultz could have picked a good time to sell his shares and enter politics. To explain, Schultz will have to sell his Starbuck stock if he runs for president.
Thus, Schultz’s “public service” has a very cynical layer of self-interest behind it. His real motivation could be to find an excuse to sell his Starbucks stock before Amazon wipes out the coffee empire.
Amazon has $41.25 billion in cash so it should pay a Dividend
I think Amazon should pay a dividend. Specifically, the money for a dividend is there in the form of $41.25 billion in cash and equivalents.
However, there is no reason for Amazon to pay a dividend when its stock trades at $1,593.33 a share. This was the price on 11 February 2019. To explain, the standard rationale for dividends it to give people a reason to pay more for the stock.
Thus, I think will be a long time before Jeff Bezos will authorize a dividend. However, Amazon is still a great company and a good stock. Although I believe Mr. Market overvalues AZMN at $1,593.33 a share.
The Everything Store’s ability to generate cash proves we live in the Age of Amazon. Thus, the philosophers, politicians, theologians, political scientists, and other thinkers will have to decide if the Age of Amazon is a good thing.
This story first appears at Market Mad House.