The e-tail giant has accounted for the $29.7 million owed, so it won't affect earnings expectations this year, analysts said. Nonetheless, the company seems to be facing increased scrutiny from investors who want to see a plan for profitability.
Under terms of the debt offering, Amazon can convert the 10-year notes for stock if the company's stock trades above 234.08 per share for 20 out of 30 consecutive trading days. That seemed attainable earlier this year when the stock was flying. But like many other Internet stocks, Amazon's shares have sunk in recent months, dropping from a high of 221.25 in April to 94 today.
In other words, as long as the stock trades at lower levels, Amazon will have to make interest payments on its debt, which could affect its future profitability, according to Alan Mak, a financial analyst who covers Amazon for Argus Research.
"If this sort of valuation continues, it could be a problem," Mak said.
Amazon's position demonstrates the downside of its persistently aggressive retail expansion. Should the U.S. economy and the company's sales continuing humming along, the strategy should work well, but current fears of an interest rate hike hint at a downturn that would leave Amazon vulnerable because its infrastructure spending is built in.
But Mak said he expects Amazon and other Internet retailers to do well this holiday season. If so, that could help push Amazon's stock near its April high and place its debt back near its conversion point, Mak said.
Lauren Cooks Levitan, who covers Amazon for BancBoston Robertson Stephens, called the interest payment a "nonevent" that analysts have already built into projections for Amazon's financial performance. Investors care more about whether the company is meeting or beating expectations, Levitan said.
Financial analyst Chris Vroom of Thomas Weisel Partners said Amazon has "ample cash" to cover the interest payments, and the company can spread those payments over the entire year.
While Amazon's note holders might be "concerned" that the company's stock price has fallen below the conversion point, Vroom said that it can take a while for stocks to reach their conversion price.
"That's not unusual," Vroom said.
In January, when Amazon announced the debt offering, analysts speculated that the company would use the money to build new distribution centers and expand its international operations. Since then, Amazon has opened distribution centers in Georgia, Kentucky, and Kansas, and has added auctions, electronics, and toys to the site.
In last month's second-quarter earnings report, the Seattle-based company said revenue had doubled compared with the year-ago period, but its loss widened to $138 million, or 86 cents a share, from $22.6 million, or 15 cents, a year earlier.
The company spent heavily to promote its Web site, invest in other companies, expand distribution capacity, and add new products such as toys, auctions, and electronics.