- Amazon spent approximately $ 2.2 billion in cash on minority interests last year, quadrupling its spending over the same period last year.
- The company now owns $ 2.6 billion in private company shares, a six-fold increase over the previous year.
- In the meantime, Amazon cut acquisitions last year and only spent $ 315 million after spending over $ 15 billion on other companies for two years.
- The change could be a shift in Amazon's investment strategy to focus more on buying smaller shares instead of controlling other companies.
- Some experts said it could help Amazon look smaller as it faces increasing regulatory control over its growing market power.
- You can find more stories on the Business Insider homepage.
Amazon has spent a lot of money last year to buy minority interests – instead of majority control – from other companies. This means a change in the investment strategy in light of the government's increasing demand to contain the technology giants.
According to an analysis by the company in 2019, Amazon recorded a record $ 2.2 billion in minority interests last year, compared to $ 550 million in the previous year annual report submitted last month. It is the first time that Amazon has invested more than $ 1 billion in this region.
Amazon does not split the individual investment amounts, but the files show that it now owns approximately $ 2.6 billion in private company shares – a more than six-fold increase over 2018. To the high-profile startups that Amazon went to last Year, include the electric vehicle manufacturer Rivian, the self-driving startup Aurora and the food delivery app Deliveroo.
In the meantime, Amazon has reduced the acquisitions it controlled the majority of other companies over the past year and only spent $ 315 million on such deals. This was the lowest level in three years. This is in contrast to 2017 and 2018, when Amazon had a record buying spree, spending $ 14 billion and $ 1.65 billion, respectively, on the acquisition of Whole Foods, PillPack and Ring.
The disclosure shows how, after unprecedented regulatory control of its market power, Amazon relied on buying part-holdings from other companies last year instead of acquiring them entirely.
Lawmakers in the United States and abroad are scrutinizing the business practices of Amazon and other technology giants, while some U.S. presidential candidates have requested that they be dissolved for anti-competitive reasons. Just this week, the Federal Trade Commission commissioned five technology companies – including Amazon, Apple, Facebook, Microsoft and Google – to provide information about past acquisitions as part of its antitrust investigation.
The Amazon representative declined to comment on this story.
Daniel Aobdia, a professor of accounting at Northwestern University, said Amazon's growth in minority interests could help make the company appear leaner as it does not have to consolidate the acquired company's financial statements.
For acquisitions where the company is controlled by more than 50%, Amazon would have to combine the target company's full annual financial statements with its own. For transactions where the majority is not under control, Amazon only needs to record the investment in its balance sheet as an asset and all income from the investment in additional items such as "other income".
"In general, an advantage of minority interests is that they help a company look smaller," Aobdia told Business Insider. "Amazon may have responded to perceived incentives to make more minority investments to avoid increased regulatory pressure related to company size."
Dan Wangerin, a professor of accounting at the University of Wisconsin-Madison, told Business Insider that companies generally spend a lot of time structuring transactions to achieve "desired accounting and tax results". For example, a company may choose to buy only the intellectual property of a target company instead of acquiring it entirely because it would not require as many disclosure and balance sheet adjustments.
"Theoretically, a strategy of structuring a deal to avoid consolidation makes sense from the buyer's perspective," said Wangerin.
It is quite possible that Amazon has made more minority investments solely due to the future growth potential. The change is interesting, however, as Amazon had become an active buyer in recent years when its cash balance reached historic highs. Amazon had a record $ 55 billion in cash and short-term investments at the end of 2019, up 34% from $ 41 billion in the previous year.
Brian Olsavsky, Amazon's chief financial officer, said last month's earnings call with reporters that the company's approach to acquisitions hadn't changed. While regulatory pressures have "risen globally," Amazon is still opportunistic about any investment case.
"Our strategy remains the same," said Olsavsky.
With annual sales of over $ 280 billion and a market cap of $ 1 trillion, Amazon is already one of the largest companies. On this scale, an investment of a few billion dollars is a meager sum. However, Amazon is anything but typical, and any new development in its investment strategy can spark considerable investor interest.
Andrew Murphy, analyst at Loup Ventures, said the change could only be temporary for Amazon. Acquisition trends are unpredictable, and Amazon has preferred to build internally in the past rather than paving the way into a new market. In this sense, Amazon is more "like Apple", which does not make many blockbuster deals.
"Amazon wants to buy early and turn something into an Amazon product or build it themselves," Murphy told Business Insider.
Matt McIlwain, general manager at Madrona Ventures, said it made sense for Amazon to become a more active startup investor. It's an easy way to learn about new technologies and business models, he said.
"It's always good to stay close to early-stage companies to see how innovative they are," McIlwain told Business Insider.