5 ms·

It doesn't matter as he can easily borrow tens of billions against his Amazon shares.

adventured 8y ago
Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon heading toward an 18 PE ratio against $20-$25 billion in profit? $360b-$450b market cap, versus a $778b market now (already down ~$250 billion from the highs). At some point in the near future will their profit growth stagnate, Microsoft or Intel style, for most of a decade; and will their multiple compress over time with that stagnation? Historically that's the very likely outcome (or far worse). The stock market goes down with the next recession, the very high S&P 500 / market multiple gets chopped down to a more reasonable historical level. After several years pass and the smoke clears, Amazon's AWS growth has slowed considerably, its online retail growth is single digits, and the market awards it a mature slower growth 15-20 style PE ratio. There has never been an exception in the tech world, when it comes to multiple compression. The compression monster comes for everyone. Microsoft, Intel, Cisco, Apple, Facebook, Google, etc have all suffered it. There will never be an exception. Amazon isn't going to get an 80 PE ratio on $20b in profit, the market will squeeze it perpetually down. It's very likely the party top is already over (the next time we see such absurdly low market-supporting interest rates, it'll be because of a recession, and stocks will have plunged accordingly). When it comes to the cost of funding Blue Origin (which is very high), I think he will have wished he sold more stock while it was on the moon during this stock market bonanza, where even very low growth stocks like Intuit are still fetching hilarious 50 PE ratios. And these are the reasonable scenarios. The dangerous scenario, where you're nuts to borrow $10 billion against stock, is where Amazon is disrupted (AWS particularly), or the economy gets really bad and Amazon gets a 16 PE ratio against $18 billion in profit (still not actually a bad outcome even then). In that case, Bezos is now borrowing $10b against ~$45b in shares or less. Non-trivial leverage, even for that much wealth. Or you could just easily evade all the major risk scenarios, sell off 1.6% of the richly valued Amazon stock - just 10% of your holdings - and fund Blue Origin debt free for a decade or so without concern (hopefully to the point of self-sustainability). And you do it while the market is bubbly, precisely because shareholders are far less likely to care then.
- Retric 8y ago
  He owns ~16% of Amazon so dividends on your hypothetical 20+ Billion in profit can cover a ~1 Billion per year hobby. Even ignoring his CEO pay and other investments. At this point maximizing ROI is probably not a major concern for him.
- deleted 8y ago
  [deleted]
- mbesto 8y ago
  Frankly, you can napkin math all of this you want, but it's very likely he has very smart and very well paid financial consultants who do all of this specific math weight against the cost of debt/capital/etc for him. In other words - let's stop speculating here and simply say "I hope he continues to focus a large portion of his wealth towards X initiative that I like"

Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon heading toward an 18 PE ratio against $20-$25 billion in profit? $360b-$450b market cap, versus a $778b market now (already down ~$250 billion from the highs). At some point in the near future will their profit growth stagnate, Microsoft or Intel style, for most of a decade; and will their multiple compress over time with that stagnation? Historically that's the very likely outcome (or far worse). The stock market goes down with the next recession, the very high S&P 500 / market multiple gets chopped down to a more reasonable historical level. After several years pass and the smoke clears, Amazon's AWS growth has slowed considerably, its online retail growth is single digits, and the market awards it a mature slower growth 15-20 style PE ratio. There has never been an exception in the tech world, when it comes to multiple compression. The compression monster comes for everyone. Microsoft, Intel, Cisco, Apple, Facebook, Google, etc have all suffered it. There will never be an exception. Amazon isn't going to get an 80 PE ratio on $20b in profit, the market will squeeze it perpetually down. It's very likely the party top is already over (the next time we see such absurdly low market-supporting interest rates, it'll be because of a recession, and stocks will have plunged accordingly). When it comes to the cost of funding Blue Origin (which is very high), I think he will have wished he sold more stock while it was on the moon during this stock market bonanza, where even very low growth stocks like Intuit are still fetching hilarious 50 PE ratios. And these are the reasonable scenarios. The dangerous scenario, where you're nuts to borrow $10 billion against stock, is where Amazon is disrupted (AWS particularly), or the economy gets really bad and Amazon gets a 16 PE ratio against $18 billion in profit (still not actually a bad outcome even then). In that case, Bezos is now borrowing $10b against ~$45b in shares or less. Non-trivial leverage, even for that much wealth. Or you could just easily evade all the major risk scenarios, sell off 1.6% of the richly valued Amazon stock - just 10% of your holdings - and fund Blue Origin debt free for a decade or so without concern (hopefully to the point of self-sustainability). And you do it while the market is bubbly, precisely because shareholders are far less likely to care then.

Retric 8y ago
He owns ~16% of Amazon so dividends on your hypothetical 20+ Billion in profit can cover a ~1 Billion per year hobby. Even ignoring his CEO pay and other investments. At this point maximizing ROI is probably not a major concern for him.
deleted 8y ago
[deleted]
mbesto 8y ago
Frankly, you can napkin math all of this you want, but it's very likely he has very smart and very well paid financial consultants who do all of this specific math weight against the cost of debt/capital/etc for him. In other words - let's stop speculating here and simply say "I hope he continues to focus a large portion of his wealth towards X initiative that I like"