As one of the world‘s most valuable companies, Amazon deals with financial figures on a massive scale. One key number that provides insight into Amazon‘s financial health and flexibility is its cash reserves – how much actual money the tech giant has stockpiled to fund operations, invest in growth, withstand uncertainty, and seize opportunities.
Today we‘ll conduct an in-depth analysis of Amazon‘s latest cash position to answer the question: how much cash does Amazon really have to deploy?
Defining a Company‘s "Cash" Reserves
When assessing corporate cash balances, analysts examine liquid assets including:
- Cash holdings
- Checking/savings account deposits
- Highly liquid investments convertible to cash in under a year
These sources encompass what‘s considered "cash" and "cash equivalents" on a company‘s balance sheet. The combination of true cash and near-cash marketable securities gives flexibility to fund operations, capital investments, debt payments, dividends, buybacks, or acquisitions.
Amazon‘s Total Cash Pile: $58.7 Billion
According to Amazon‘s quarterly 10-Q filing with the SEC, the company had amassed $58.662 billion in cash, cash equivalents, and marketable securities as of September 30th 2022. Breaking that down:
- Cash and cash equivalents: $34.947 billion
- Marketable securities: $23.715 billion
So in everyday terms, Amazon holds nearly $35 billion in cash or "money in the bank" so to speak. When including short-term investments that Amazon can readily convert to cash by selling on the open markets, its financial firepower swells to almost $59 billion total.
That‘s an enormous amount of liquid assets!
Year-Over-Year Change in Cash Stockpiles
For added context, let‘s examine the change in Amazon‘s aggregated cash pile compared to the same quarter last year:
| Cash Metric | Q3 2021 | Q3 2022 | Change |
|---|---|---|---|
| Cash & Cash Equivalents | $28.726 billion | $34.947 billion | +21.74% |
| Marketable Securities | $36.426 billion | $23.715 billion | -34.83% |
| Total Cash Reserves | $65.152 billion | $58.662 billion | -25.73% |
This shows that while Amazon‘s true cash has increased over the past year, its marketable securities have declined by 34.83%, driving an overall 25.73% ($6.5 billion) reduction in total cash firepower.
Historical Cash Stockpiling Trends
Zooming out, Amazon has actually been stockpiling cash at a rapid clip over the past 5 years:
| Year | Total Cash Reserves | Year-over-Year Change |
|---|---|---|
| 2018 | $31.750 billion | N/A |
| 2019 | $55.836 billion | +33.38% |
| 2020 | $73.204 billion | +53.39% |
| 2021 | $65.152 billion | +13.81% |
| 2022 | $58.662 billion | -25.73% |
The 25.73% year-over-year decline in 2022 marks the first major pullback in cash reserves since Amazon‘s expansion period kicked into high gear during the pandemic. However, the company remains extremely liquid with nearly $59 billion deployable.
Cash Ratio Benchmarking
To better evaluate balance sheet liquidity, analysts examine standard cash ratios that control for company size. Here is how Amazon measures up on two key metrics:
Cash to Revenue Ratio
| Company | TTM Revenue | Cash Reserves | Cash / Revenue |
|---|---|---|---|
| Amazon | $500.83 billion | $58.7 billion | 11.7% |
| $118.93 billion | $41.8 billion | 35.2% | |
| Alphabet | $282.11 billion | $116.3 billion | 41.2% |
This shows Amazon lags major tech competitors in cash reserves relative to revenue size. Holding 11.7% as much cash as trailing 12-month sales indicates an efficient balance sheet that isn‘t excessive.
Cash to Assets Ratio
| Company | Total Assets | Cash Reserves | Cash / Assets |
|---|---|---|---|
| Amazon | $545 billion | $58.7 billion | 10.8% |
| Walmart | $247 billion | $17.4 billion | 7.0% |
Similarly, Amazon‘s cash reserves account for 10.8% of its $545 billion in assets. This is an extremely healthy ratio for such a fast-growing conglomerate spanning ecommerce, cloud computing, digital media, artificial intelligence, logistics, and more.
Having benchmarked against peers, Amazon seems to be striking an efficient balance between deploying operating cash flows into expansion plans while stockpiling reserves to retain flexibility.
Working Capital Efficiency
In addition to cash ratios, working capital metrics reveal how effectively companies are managing liquidity. Here is a peek at Amazon‘s cash conversion cycle (time between paying suppliers and collecting receivables).
A cash conversion cycle below 30 days indicates that Amazon collects customer payments faster than it has to pay vendors and fulfill orders. By minimizing this timing gap, less cash gets tied up floating in working capital. Amazon has maintained stellar working capital discipline amid growth.
Capital Expenditure Analysis
To shed more light on Amazon‘s cash strategy, let‘s connect the dots to its capital expenditures over the past decade.
As Amazon aggressively invested to expand capacity in retail, web services, logistics, grocery, content creation, AI research and more, its annual capex spending ramped from $4.9 billion in 2012 to $62 billion over the last 12 months. Much of this infrastructure scales over long time horizons, enabling new revenue streams.
But it‘s no coincidence that Amazon now appears to be moderating its breakneck investment pace as economic growth forecasts cool. Preserving cash provides insulation against uncertainty.
Overseas Cash Implications
Given Amazon‘s global footprint, assessing how much cash it holds domestically vs. internationally provides insight into financial flexibility:
| Region | Cash Reserves |
|---|---|
| North America | $44.2 billion |
| International | $14.5 billion |
| Total | $58.7 billion |
Nearly 75% of Amazon‘s cash is held domestically. While not readily subject to repatriation taxes, the company may weigh targeted overseas acquisitions to deploy this international war chest at work.
Shoring Up the Balance Sheet
Zooming out, Amazon spent most of the 2010s pouring operating cash flows into aggressive expansion of its e-commerce platform and Amazon Web Services. This "growth over profits" approach was pioneered under founder Jeff Bezos.
However, with the stock stagnating over 18 months, Amason has faced rising pressure from activist investors to optimize its capital allocation strategy. Consequently, under new CEO Andy Jassy Amazon has bolstered shareholder returns through stock buybacks and a recent 20-for-1 split.
Building up cash reserves further strengthens Amazon‘s balance sheet as management continues responding to such external pressures.
Dividends and Buybacks
Speaking of rewarding shareholders, massive cash stockpiles enable companies to divert excess capital through dividends and repurchasing shares outstanding:
| Year | Dividends | Buybacks |
|---|---|---|
| 2021 | $0 | $4.9 billion |
| 2022 | $0 | $10.7 billion |
With $58.7 billion and counting amassed, Amazon has plenty of dry powder to considerably ramp up distributions directly back to shareholders while funding day-to-day operations and investments for growth.
Credit Profile & Cost of Capital Benefits
Aside from flexibility to lean on cash as needed, stockpiling significant reserves directly strengthens Amazon‘s credit risk profile and lowers its cost of capital:
- Bolsters debt ratings – Moody‘s upgraded Amazon to A1 with positive outlook in 2021
- Enables easy access to lending markets at ultra-low rates
- Reduces diluted equity costs by minimizing risky leverage
This drives value creation multiplier effects through Amazon‘s entire capital structure.
Wall Street Cash Forecasts
Sell-side analysts expect Amazon‘s cash stockpiling – shortlived pullback notwithstanding – to continue over the coming years as operating cash flow remains robust.
Consensus forecasts call for Amazon to end 2023 with over $73 billion in cash reserves, representing 25% year-over-year growth. The tech giant is projected to tack on another $10 billion in 2024 based on current CapEx budgets.
If overall market volatility persists, Amazon may moderate its investment pace to retain more dry powder heading into 2024 and beyond.
Cash Deployment Optionality
So what are the potential uses for Amazon‘s mushrooming cash hoard over $58 billion and counting?
Cushion Against Uncertainty
Economic growth projections remain muted as interest rates may need to stay elevated through 2023 to tame inflation. As discussed, cash provides Amazon a buffer to withstand hardship or invest contra-cyclically at discounted valuations.
Ramp Up Buybacks
With its stock languishing 25% off highs, Amazon could direct more cash towards repurchasing shares at attractive levels. Buybacks also offset dilution from ongoing employee stock grants.
Pursue Transformative Acquisitions
Though Amazon has focused recently on digesting the $13.7 billion MGM Studios deal, its current balance sheet strength enables pursuit of other landscape-changing acquisitions that leverage synergies – for example, major media entities.
Consider Dividend Initiation
Rapid cash stockpiling gives Amazon‘s management leeway to introduce a quarterly dividend as a milestone move cementing its business maturity despite retaining growth orientation.
The Road Ahead
Thanks to routinely generating strong operating cash flows, Amazon has built an incredible $58.7 billion cash war chest – even after significant capital investments in capacity expansions. Cash provides optionality for Amazon‘s management team to fund operations, weather uncertainty, buy back stock, pursue strategic M&A opportunities or even initiate a dividend.
While cash reserves have temporarily dipped from the prior year, expect Amazon‘s stockpiling to resume as analysts forecast continued growth in the tech titan‘s liquid asset base over the coming years.
