Seeking to raise more cash, Amazon.com plans to sell about $600 million of convertible subordinated notes that will be denominated in euros. The company did not indicate in detail how it will use the money, although Amazon founder Jeffrey Bezos said some of it will be used to expand the company's European operations, which are centered in the U.K. and Germany.
Moody's gave the offering a "highly speculative" rating of Caa3, continuing to express doubts about what it calls "the uncertain financial success of Amazon.com's changing business strategy [and] the equity-like risk assumed by debt holders as the company's horizon to achieving positive earnings and cash flow continues to be pushed out."
In an eyebrow-raising comment, Moody's said that last week's earnings announcement was "difficult to interpret." Among the points at issue: revenue and cumulative customer growth rates are growing at the same rate "despite the expectation that the rollout of four new 'stores' at Amazon and holiday shopping activity would have boosted the growth rate in the last quarter."
Moreover, Moody's indicated that a variety of productivity measures "appeared to fall" in both the fourth quarter and throughout 1999. Still, Moody's noted that Amazon has a solid brand name and a good reputation among customers.
The Amazon notes are bonds that have high interest rates, are convertible into stock and will come due in 2010. Sara Farley, an analyst at PaineWebber, told thestreet.com that the company wants "the additional buffer to be able to fund what are expected to be additional losses over the next several quarters."
In an SEC filing about the bond issue, Amazon noted that the Federal Trade Commission has launched an informal inquiry into how Alexa Internet, a subsidiary, collects data about Internet usage by consumers. The company also is the target of two privacy-invasion lawsuits on the same issue.
