Amazon Has Now Invested $1 Billion in Other Companies – Taking Advantage of New Tax Laws
The Amazon (NASDAQ:AMZN) investment portfolio is approaching that of a major hedge fund's level; the company's total investment in other companies' stock now sums to a nice, round billion dollars.
We last covered Amazon on their quarterly report which showed the e-commerce juggernaut showing huge gains in profitability. On that same report, Amazon disclosed that they have now invested a total of a billion dollars in both private and public companies.
About $593 million is in public company equity, the specifics of which Amazon does not disclose, and the remaining $407 million is in privately held companies.
Despite no specifics getting listed by Amazon, the company has in fact announced notable investments in the past few years. Investments worth about $400 million were made in fuel cell manufacturer Plug power as well as an air cargo provider called Air Transport Services. Amazon is quickly deploying its Amazon Air service that will see up to 100 planes making 200+ flights a day with a staff of 15,000 all by 2025.
While the fuel cell play doesn't strike as synergistic, the investment begins to make sense when you think about Amazon's massive distribution and fulfillment hubs. Amazon has hundreds of forklifts at work and outfitting them with fuel cells - enabling a 5 or even 10 percent floor space savings by scraping battery recharging stations. Not only that but according to the Plug Power website, traditional battery powered forklifts lose about 14 percent maximum speed on the second half of their battery's charge, while fuel cells don't lose any speed. This helps Amazon's forklift pick rates increase by up to 10 percent!
Amazon taking full advantage of new U.S. corporate tax code
Its never polite to say, "I told you so", but I must point out that our Finance Editor, Adian lp, pointed out this trend specifically back in December when the new legislation was up for vote.
Again however, what we have here is an effort to not just tax US activity less, but also an incentive for companies to start looking at their money in a more traditionally capitalist manner. By which I mean moving it to where they can get the best return on investment. Something which current tax law doesn’t really facilitate because companies keep cash in low yielding territories to avoid paying a massive tax bill if they bring it back to the US. Under the new rates, the objective of course is that if they generate a lot of profit in another major economy and pay the tax there, they won’t have to pay any tax to the US if they paid 21% or more where the profit was generated.
Adian lp, Finance Editor, December 2017
Trump and other fiscal conservatives launched an initiative in 2017 to reduce the U.S. corporate tax rate from 35% (highest in the world) to 21% (lower than average, globally). In addition, repatriated funds (money brought home from overseas accounts) would get a one-time tax holiday season with minimal taxation.
Their hope was, at least partially, that companies, especially those like tech giants that are flush with cash, would be tempted to re-invest capital funds into the U.S. domestic market. The U.S. remains an excellent market to invest and it could help spur economic development.
It's interesting to note that only 12 percent of hedge funds in the United States, as of 2017, count more than $1 billion in total managed assets, making Amazon's total equity in other companies quite sizeable by comparison.
Salesforce (NYSE:CRM) and Microsoft (NASDAQ:MSFT) also hold around a billion dollars of equity in other companies, however, that doesn't even come close to Google's parent corporation. Alphabet Inc. (NASDAQ:GOOGL) owned $8.8 billion worth of stock, just in privately held companies, as of the end of last year.
Amazon might not even be doing this for traditional ROI or operational needs, either.
Matt McIlwain is an investor at Madrona Venture Group which has co-invested in startups alongside Amazon. McIlwain said big tech companies like Amazon get to stay abreast of emerging technologies and business models by staying invested in other companies. Many times the company accepts equity contracts that contain the right to buy stock at a future date, instead of cash when entering into deals and this is a good explanation as to why.
While $1 billion is still a lot of money, keep in mind that Amazon now has a market capitalization of over $900 billion and holds a solid $130 billion in assets. So Amazon's current capital investments into other companies is at 1 percent.. for now.
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