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This morning Amazon.com (NASDAQ: AMZN) has announced that it is retiring debt and will buy back common stock.

Bezos & Co. has authorized a debt repurchase program that it may repurchase, redeem or retire, up to all of its outstanding 4.75% convertible subordinated notes due 2009 with an outstanding balance of $899 million in principal; and it can repurchase, redeem, or retire its 6.875% convertible subordinated Notes due 2010 that has a currency converted balance of some $350 million or so outstanding. This debt repurchase authorization will replace a February 2006 $500 million debt repurchase authorization.  The debt matures next year and the year after, so it will probably just allow these to mature without replacing them. 

But Bezos & Co. is also announcing a $1 Billion share buyback plan over the next 24-months, which will replace the existing $500 million stock buyback plan put in place in April 2007.

While Amazon stock has pulled back some 30% from its 2007 highs of $101.09, this stock is actually up roughly 75% off of its lows and up 130% or so from lows over the last two-years. 

Are there no acquisitions out there that can be made with that $1 Billion?  With a forward P/E ratio for 2008 of 45 and with a near-$30 Billion market cap it can almost certainly find attractive buyout targets that would add another growth driver and simultaneously take out competition.

Taking away debt.. that’s good.  But at $70.00 a $1 Billion buyback wouldn’t even be a day and half of average share trading volume. 

Dear Mr. Bezos, kill the debt.  But kill the stock buyback too.

Jon C. Ogg
February 8, 2008