Tuesday
May012007

AMZN's Most Profitable Business: Buybacks

When Amazon.com reported earnings on April 24th, investors were excited that the company was able to increase its return on investment as the company handily beat EPS forecasts and guided 2007 forecasts higher. But there was one aspect of the report that received little attention. While the company’s earnings yield based on 2007 EPS forecasts is a meager 1.6%, one area where the company has had an amazing return on investment is stock repurchases.

Since August 2006, the company has spent $500 million buying back 14 million shares of its stock (approximately 3.4% of outstanding shares). As the chart below shows, these buybacks took place ahead of the stock’s major run last week. Those 14 million shares which the company spent $500 million buying back are now worth $868 million for a profit of $368 million in less than a year (73%)! To put that number in perspective, the unrealized profit on the stock buybacks is nearly twice as much as the company made all last year.

Amzn_price_chart_10