Home / Tech / Amazon's annual filing shows it loaded up on private company stock while scaling back acquisitions last year — a change that could help as regulatory scrutiny grows (AMZN)

Amazon's annual filing shows it loaded up on private company stock while scaling back acquisitions last year — a change that could help as regulatory scrutiny grows (AMZN)

FILE PHOTO: Jeff Bezos, president and CEO of Amazon and owner of The Washington Post, speaks at the Economic Club of Washington DC's

  • Amazon spent roughly $2.2 billion in cash on minority investments last year, nearly quadrupling from the year-ago period, according to company filings.
  • It now owns a record $2.6 billion worth of private company stock, an over six-fold increase from the previous year, filings show.
  • Meanwhile, Amazon cut back on acquisitions last year, spending only $315 million, after a two-year record run of spending over $15 billion on buying other companies.
  • The change reflects a potential shift in Amazon’s investment strategy, focusing more on buying smaller stakes, instead of majority control, of other companies.
  • Some experts say it could help Amazon look smaller as it faces increased regulatory scrutiny over its growing market power.
  • Visit Business Insider’s homepage for more stories.

Amazon spent more money buying minority stakes — instead of majority control — of other companies last year, representing a shift in investment strategy amid increased calls for the government to rein in tech giants.

Amazon reported a record $2.2 billion in cash spent on minority investments last year, up from the previous year’s $550 million, according to an analysis of the company’s 2019 annual report filed last month. It’s the first time Amazon’s investment in the area exceeded $1 billion.

Amazon doesn’t break down individual investment amounts, but filings show it now owns roughly $2.6 billion worth of private company stock in total — an over sixfold increase from 2018. Some of the high-profile startups that Amazon invested in last year include electric vehicle maker Rivian, self-driving startup Aurora, and food delivery app Deliveroo. 

Meanwhile, Amazon has cut back on the acquisitions that gave it majority control of other companies last year, spending just $315 million on such deals, its lowest in three years, filings show. That’s in contrast to 2017 and 2018, when Amazon went on a record buying spree, spending $14 billion and $1.65 billion, respectively, to acquire Whole Foods, PillPack, and Ring, among many others. 

The disclosure shows how Amazon has resorted to buying partial stakes of other companies, instead of fully acquiring them, following unprecedented regulatory scrutiny over its market power last year. 

Lawmakers in the US and abroad are closely examining Amazon and other tech giants’s business practices, while some US presidential candidates have called for breaking them up over anti-competitive reasons. Just this week, the Federal Trade Commission ordered five tech companies — including Amazon, Apple, Facebook, Microsoft, and Google — to turn over information about past acquisitions, as part of its antitrust investigation.

Amazon’s representative declined to comment on this story.

amazon investiment in private company

‘Look smaller’

Daniel Aobdia, an accounting professor at Northwestern University, said Amazon’s growth in minority investments could help the company appear leaner because it doesn’t have to consolidate the financial statements of the acquiree. 

For acquisitions that give over 50% control of the company, Amazon would need to combine the full financial statements of the target company with its own. But for deals that give less than majority control, Amazon just needs to record the investment on its balance sheet as an asset, and any income derived from the investment on additional line items like “other income.” 

“In general, an advantage of minority investments is that they help a company look smaller,”  Aobdia told Business Insider. “Amazon may have acted upon perceived incentives to make more minority investments, in order to avoid increased regulatory pressure related to the company size.”

Dan Wangerin, an accounting professor at University of Wisconsin-Madison, told Business Insider that companies in general put a lot of time into determining how to structure transactions in order to achieve “desired accounting and tax outcomes.” For example, a company may decide to buy only the intellectual property of a target business, instead of fully acquiring it, because it wouldn’t require as much disclosure and balance sheet adjustments.

“In theory, a strategy to structure a deal in such a way to avoid consolidation makes sense from the acquirer’s perspective,” Wangerin said.

It’s still entirely possible that Amazon made more minority investments simply because of the future growth potential. But the change is interesting given Amazon had turned into an active buyer in recent years as its cash balance reached historic highs. Amazon had a record $55 billion in cash and short term investments as of the end of 2019, up 34% from the previous year’s $41 billion.

Amazon’s CFO Brian Olsavsky said during last month’s earnings call with reporters that the company’s approach to acquisitions hasn’t changed. While the regulatory pressure has “stepped up globally,” he said Amazon still looks at each investment case opportunistically.

 “Our strategy remains the same,” Olsavsky said.

‘Like Apple’

At over $280 billion in annual sales, and a market cap of $1 trillion, Amazon is already one of the largest companies in the world. With that kind of scale, an investment of a few billion dollars is a paltry sum. But Amazon is anything but typical, and any new development in its investment strategy can draw significant investor interest.

Andrew Murphy, an analyst at Loup Ventures, said the change could be temporary for Amazon. Acquisition trends are unpredictable, and Amazon has historically preferred to build internally instead of buying their way into a new market. In that sense, he said, Amazon is more “like Apple,” who doesn’t engage in many blockbuster deals. 

“Amazon wants to buy early and transform something into an Amazon product, or build it themselves,” Murphy told Business Insider.

Matt McIlwain, a managing director at Madrona Ventures, said it makes 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 is always good to stay close to early stage companies to see how they are innovating,” McIlwain told Business Insider.

SEE ALSO: Leaked emails show Amazon is stockpiling products made in China because of the risk that the coronavirus poses to its supply chain

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