Amazon now owns $1 billion worth of other companies

Key Points
  • Amazon disclosed in its latest quarterly report that it now owns $1 billion worth of stock in public and private companies. 
  • That's up 60 percent from the year-ago period's $623 million and a 163 percent increase from the $380 million it disclosed in the same quarter of 2016.
  • It's the latest sign of Amazon becoming a more aggressive investor.
Amazon CEO Jeff Bezos (l) and Fiat Chrysler chairman John Elkann walk the grounds at the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 12, 2018.
David Paul Morris | Bloomberg | Getty Images

Amazon has become a more active corporate investor in recent years — and now its investment portfolio is worth $1 billion for the first time.

Amazon disclosed in its latest quarterly report that it now owns $1 billion worth of stock in public and private companies, as of the end of the second quarter. That's up 60 percent from the year-ago period's $623 million and a 163 percent increase from the $380 million it disclosed in the same quarter of 2016. Compared to early 2015, it's almost a fivefold increase in value.

The growth in Amazon's investment portfolio is the latest sign of the e-commerce giant becoming more aggressive with external investments. The change comes as the company has become more profitable and cash rich — and acquisitive — in recent years.

"While Amazon hasn't in the past really been focused on equity investments, it seems like it's taking a lot more interest in investing in other companies, both public and private," said Thomas Ruchti, an accounting professor at Carnegie Mellon University.

Amazon disclosed that $593 million of the $1 billion investment is in public company equity and equity warrants that give it the right to purchase company stock in the future. The other $407 million worth of stock comes from privately held companies. In the same period of last year, $338 million of the investment value came from public company stock, with private company shares accounting for $285 million.

Amazon didn't provide details of the individual investments or holdings in each company. But it has announced investments worth roughly $400 million in two public companies in recent years: fuel cell maker Plug Power and air cargo provider Air Transport Services Group. It's also been part of funding rounds for more later stage startups, such as voice-powered sales software company Tact and cancer-detection start-up Grail, which typically require larger investments.

Amazon didn't respond to a request for comment.

"It's safe to say that Amazon is active in venture capital investing, and their investments – like many in the current market — are increasing in value," said Jarrad Harford, a finance professor at the University of Washington.

Staying 'in the loop'

It's not uncommon for big companies to hold a large investment portfolio. Both Salesforce and Microsoft, for example, made investments in public and private companies that are now worth around $1 billion, according to their latest quarterly filings. Alphabet, meanwhile, disclosed it owned $8.8 billion worth of stock just from privately owned companies, as of the end of 2017.

In Amazon's case, the growth in external investment comes at a time when the company is enjoying record profits and a growing cash balance. It's also buying companies at an unprecedented rate, best exemplified by its $13 billion purchase of Whole Foods last year.

Cramer: Amazon should be worth more than $1 trillion
Cramer: Amazon should be worth more than $1 trillion

The size of Amazon's investment portfolio is still small relative to the company's overall value. Amazon is worth over $900 billion and holds $130 billion worth of assets, meaning the investment value is less than 1 percent of its total business.

One reason for the growth in investment value is because Amazon is likely taking company equity in lieu of cash or fees from its business partners. Amazon disclosed in its annual report that it often obtains equity warrants "as part of entering into commercial agreements," suggesting part of its compensation comes through the right to purchase shares of stock in its partner companies, according to Nick Seybert, an accounting professor at University of Maryland.

"It makes sense to assume that Amazon is requesting these stock warrants from their commercial partners so they can take a stake in those companies' future growth," Seybert said.

But Amazon's main reason for these investments may be its desire to keep tabs on the latest technology trends, said Matt McIlwain, an investor at Madrona Venture Group. McIlwain, who has co-invested in a number of startups with Amazon over the years, said big companies like Amazon get to learn about new technologies, business models, and entrepreneurs by investing in younger startups.

"The best way to be in the loop is to be an investor and actively add value to companies," McIlwain said. "It's about all the learnings a big company can experience investing in young companies."