Amazon Greenlights $1B Share Buyback

Amazon.com’s new stock buyback program and its newly stated goals to retire outstanding debt appear to be a good fit for a company that seems to be in an aggressive mode, according to analysts.

“It’s certainly not going to put a huge dent in their cash coffers,” Michael Souers, a retail analyst with Standard & Poor’s, told the E-Commerce Times Friday. “It’s a really good use of capital, with interest rates way they are.”

Amazon shares were trading at US$73.03 — up by $2.12 — at midday on Friday, in the wake of the Seattle-based company’s announcement Friday that it had authorized a debt repurchase program to retire notes worth about $1.25 billion and a share buyback program worth up to $1 billion over the next two years.

Amazon will repurchase, redeem or retire some or all of its 4.75 percent convertible subordinated notes that are due next year, with about $899 million in principal outstanding, and its 6.875 percent convertible subordinated notes due in 2010, with about $350.1 million outstanding.

The debt repurchase program replaces a previous $500 million debt repurchase plan authorized in February 2006. The stock repurchase authorization replaces a $500 million buyback plan authorized last April.

A Positive Move

It’s a good strategy for Amazon, Souers said. “Use capital to be accretive to earnings — we’re positive on the move. Obviously, it’s another indication that Amazon feels that it represents a good (stock) value in the ($)70s.”

Amazon shares had a 52-week range of $37.04 and $101.09.

The company likely will be aggressively moving on its buyback option in the near term, Souers said. “Typically they’ve bought back in first quarter the last couple of years, and we expect that trend to carry through, where they’re aggressive in the first quarter.”

Amazon stock has increased after its last couple of first-quarter earnings statements, he noted.

The moves may just be a reflection of Amazon’s desire to have more control over its stock, Anne Thomas Manes, a Web services analyst with the Burton Group, told the E-Commerce Times.

“If Amazon is concerned about a hostile takeover, one way to prevent that is to have control over the stock,” she said. “I suppose the other reason is they think the price of the stock is going to go up, and that would be good for the company.”

The Latest in a Series

The repurchase authorizations are the latest of several moves by the online retailer, which said Jan. 31 it would purchase digital audio books supplier Audible for about $300 million as a way to enhance its download lineup. That announcement came four days after Amazon said it would roll out its music store internationally this year.

“I think the changes you’re seeing — them increasing their media digital offerings — they’re being nimble and responding to consumer demand, as consumers are moving from CDs to MP3s,” Souers said. “Perhaps this trend won’t be as significant in e-book category, but I think this trend will gain steam in near and longer term.”

It’s consistent for Amazon, he added. “They’re known as consumer-friendly Web site. This is a way for them to continue that.”

Amazon’s moves, at least in the music portion of its business, deserve some time before judgment, said Yankee Group analyst Mike Goodman, who monitors the download market.

“From a music perspective, they’re still the new kid and, as such, they’re getting favored-nation status with the recording industry, which is looking for a more malleable partner than iTunes,” Goodman told the E-Commerce Times. “There are some good things happening, but they have to percolate in the marketplace to see if they’re going to do well against iTunes. This is a marathon — not a sprint.”