Why Amazon Is Borrowing $3 Billion

jeff bezos smiling

Photo: Scott Beale / Laughing Squid

Amazon is seeking to raise $3 billion in debt, the Wall Street Journal reports.And why not? It’s paying 0.38 to 0.93 percentage points more than comparable Treasury rates in interest for the bonds, which mature in 3, 5, or 10 years.

As of the last quarter, Amazon had $5.25 billion in cash and short-term securities, and no long-term debt. But it has plenty of uses for that cash: First, its headquarters, which it just agreed to buy for $1.16 billion. Second, its gigantic fulfillment centres, which it is planting across the United States as the old sales-tax regime (where online retailers where exempt from collecting tax) falls apart.

In the ’90s, Amazon first generated equal parts cash and controversy by venturing into the debt markets to fund its expansion. Some predicted a debt-fuelled death spiral for the then-unprofitable retailer. But since then, it has seized a huge advantage over its competitors by making a bet others weren’t willing to make on warehouses that speed goods to shoppers’ doorsteps.

Here’s the most intriguing thing Amazon could spend the money on: a same-day delivery network in major cities coast to coast.

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