Where other companies focus on earnings, Amazon bases its capital spending on free cash flow. It highlights that number in every quarterly report. Amazon’s long-term debt stood at over $41 billion at the end of March, against assets of $178 billion.
Amazon is also a research monster. Research spending was $1.2 billion in 2009. In 2018 it was $28.8 billion.
Amazon is making America great again. Why would anyone want to break it up?
Amazon for Everyone
If Amazon were spending its money solely to make Amazon great, critics might have a case to make.
But the company premise has always been to invest on behalf of other businesses, and not just itself. Amazon launched Amazon Web Services in 2006, and had been renting some of its cloud capabilities for four years before that. This was long before any other cloud rival became a cloud vendor.
Amazon began offering its fulfillment services to other vendors in 2008. More than half of Amazon’s deliveries today are on behalf of other companies, and that has been increasing.
While politicians have talked about infrastructure, and most corporate CEOs have danced around it, Amazon has been putting money into it, and making it available to competitors. That’s why Amazon has its own fleet of delivery trucks, its own airplanes, and is launching its own drones, following the path of China’s JD.com (NASDAQ:JD).
Stop the Investing?
Efforts to break up Amazon are predicated in part on the work of Lina Khan, who as a law student in 2017, suggested in a Yale Law Journal article that Amazon should be made a common carrier, like AT&T (NYSE:T), for the purpose of controlling its market dominance.
Instead of looking for harm to consumers, Khan argues for “economic structuralism,” the idea that any market dominated by a few companies promotes anticompetitive conduct. Her article views lower prices as predatory and vertical integration as undermining competition.
The problem with this approach is that it makes any company that scales subject to the government’s micro-meddling. International Business Machines (NYSE:IBM) slowly lost its competitiveness under Justice Department guidance. So did Microsoft (NASDAQ:MSFT). If we had waited for AT&T build the cloud, we’d still be waiting. Khan’s conceptual framework would prohibit large companies from investing ahead of a market. It would make all scaled infrastructure investment subject to government control.
How does that help us compete with China?
The new attitude spawned by Khan’s paper has made every Amazon action subject to political and media sneering.
Like its fellow cloud czars — Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) — Amazon is having to hire a host of lawyers, PR mavens, and political pros to defend its right to engage in business.
Bottom Line on Amazon Stock
The question for Amazon stock investors isn’t whether critics are right but how much the results of that criticism will cost the company in terms of profit and stock market gains.
History shows that antitrust scrutiny becomes internalized. Companies under the government’s eye become increasingly adept at saying “no” to change and, eventually, put money into dividends and buybacks rather than infrastructure.
Every Amazon investment is now subject to criticism. From the way it operates its warehouses to its efforts to build office space, from the TV shows it offers Amazon Prime members, to the recommendations of its search engine, Amazon now has a target on its back before the press, the public, and (most important) the government. AMZN stock reacts.
Amazon is now Gulliver, and the Lilliputians have landed.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and AAPL.