Investors Interested in Amazon Stock

The most recent earnings report for Amazon hints that investing in this stock may prove to be a very good move if the predictions of most markets turn out to be true. However, there are still many investors who aren’t completely sure if an investment in Amazon is the right thing to do at this moment. One of the main reasons for this is the huge amount of money that the company holds in the form of unrepatriated income – assets which may have a significant impact on Amazon’s future.

The repatriation income makes it very difficult for investors to take the right decision, because of the dangerous combination of the US’ high corporate taxes and the currency risk.

The news of unrepatriated income concerns another major US-based company, Apple. The corporation’s lack of debt financing is always part of the discussions regarding unrepatriated income, and the fact that most foreign earnings are rarely reinvested back into the US. Of course, this policy is very common among large enterprises, so Apple and Amazon aren’t the only names that do this. One of the main reasons why so many US-based companies prefer to keep their earnings away from the US is the staggering corporate tax rate of 35%. The other major problem in front of these companies is the currency risk which makes such investments
quite dangerous.

The increasing growth abroad results in too many short term investments and cash/cash equivalents that are often denominated in currencies different than the American dollar. The latest figures show that during the last 5 years, Amazon’s foreign funds have increased by 325% and surpassed the amount of the company’s domestic counterpart.

Amazon’s rapid growth abroad provides the company with enough funds to fuel its aggressive expansion strategies. However, it also generates a significant difference between the reported and true amount of the funds generated by these holdings. Although Amazon’s policy is working well so far, the company and people thinking of investing in it, should keep in mind that if at some point Amazon decide to reinvest funds back into the US, they’ll suffer a lot from the tax charge, and maybe from the exchange rates.

At the moment, a major fraction of Amazon’s foreign value is in Yen, Pounds and Euros. However, the figures released by the company don’t show detailed information about the amounts held in each currency. Just take a look at the fluctuations of these currencies versus the American dollar, and you can see the negative impact which the exchange rates and US taxes may have on Amazon’s repatriated income.

Noone can be sure if the example above will become real anytime soon, but investors who are interested in Amazon stocks should be familiar with the dangers which such a move hides. The fluctuating exchange rates and repatriation income shouldn’t be ignored if you are about to make a major investment.

At the moment, Amazon is doing well above expectations, and it certainly doesn’t look as if the company will have any problems soon. Their expansion strategies are working flawlessly and they aren’t short of funds, so their future is looking bright for now. However, the company’s progress will slow down at some point, and you should be prepared to deal with the consequences caused by this event. If you hold Amazon stocks, then we advise you to pay close attention to the movement of the USD/JPY, GBP/USD and EUR/USD currency pairs, as well as the company’s expenditure and cash production statistics.