Why Amazon stock slipped on Monday

The company is floating an Amazon-sized stack of fresh debt.

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a warehouse worker wearing a face mask handles a cardboard box in an automated warehouse setting with equipment in the background.

Image source: Amazon

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Even within the giant US stock market, it's not every day that a company announces an 11-figure bond issue. Monday was an exception, with Amazon (NASDAQ: AMZN) floating $12.75 billion of debt. For a company of Amazon's size, that's quite a bit of scratch and investors responded to the news by trading its stock down by more than 2% on the day.

So what

Amazon's unsecured senior debt was issued in seven parts, all of which have different coupons and maturities. These range from 2.73% notes maturing in 2024 to 4.1% notes coming due in 2062. At least the interest payments are consistent throughout the series. For each, those disbursements will be effected on 13 April and 13 October of every year starting this October. In its prospectus on the notes, the retail sector giant wrote that it aims to use the proceeds
for general corporate purposes, which may include, but are not limited to, repayment of debt, acquisitions, investments, working capital, investments in our subsidiaries, capital expenditures, and repurchases of outstanding shares of our common stock.
Any, and even all, of those uses are necessary for Amazon's functioning. At the end of 2021, the sprawling company had over $116 billion of outstanding debt to service. And in mid-March, it closed an $8.5 billion deal for what's effectively a big film and TV content warehouse, MGM.

Now what

At the same time, though, Amazon's encouraging recent fundamentals give the company balance-sheet strength. Its pile of cash and short-term investments rose to over $96 billion at the end of last year, a massive amount that was 11% higher year over year. Yes, $12.75 billion is a considerable figure and yes, interest rates aren't as low as they used to be. But considerable figures are the rule and not the exception for Amazon, and the company has more than enough financial muscle and growth potential to handle them. The stock's bulls shouldn't fret about this move.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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