Throughout the COVID pandemic, Amazon recorded a substantial increase in revenues that also resulted in more cash from operating activities (Amazon has positive cash conversion cycles). However, cash was spent from operations to expand shipping and fulfillment. And from investing activities in increasing the capability of the Amazon tech platform (AWS).
Glance at Amazon cash flows
- Operating: primarily related to the cash moved through business operations.
- Investing: primarily related to the cash moved through investing activities:
- Financing: primarily related to the cash moved through financing activities
Operating cash management
- Cash provided by operating activities was $1.8 billion in Q1 2019, vs $3.1 billion in Q1 2020.
- Operating cash inflows and increases were primarily driven by cash received from consumers (online and physical stores), sellers (through third-party commissions and services), developers (commission from sales of Apps on Amazon App Store), enterprise customers (for AWS), content creator customers, and advertisers (from Amazon Advertising business). To know more about this read the Amazon Business Model Map.
- Amazon’s online stores, while running at very tight profit margins, also benefit from substantial short-term liquidity. That is because Amazon gets cash directly from customers (through credit card payments). Because consumers primarily use credit cards to buy on Amazon, our receivables from consumers settle quickly (see Amazon cash machine).
- Primary operating cash outflows consist of payments Amazon makes for products and services, employee compensation, payment processing, related transaction costs, operating leases, and interest payments on Amazon‘s long-term obligations.
Investing cash management
- Cash from investing activities primarily corresponds with cash capital expenditures (including leasehold improvements), incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities.
- Cash used in investing activities was $8.1 billion for Q1 2019 vs $8.9 billion in Q1 2020. The difference was due to Amazon‘s decision to purchase or lease property and equipment and purchases, maturities, and sales of marketable securities.
- Investing cavities also comprise cash capital expenditures. Those were $2.7 billion in Q1 2019 vs $5.4 billion in Q1 2020, primarily due to the additional capacity to support Amazon‘s fulfillment operations and additional investments in support of the technology infrastructure (majority to support AWS). Therefore, as direct consequence of substantial volume in sales from COVID.
- Cash used in financing activities was $2.4 billion for Q1 2019 vs $2.6 billion for Q1 2020.
- Cash outflows also come from financing activities resulting from principal repayments of finance leases and financing obligations and repayments of long-term debt which consisted of $2.6 billion for Q1 2019 vs $3.3 billion for Q1 2020.
- Property and equipment acquired under finance leases were $2.6 billion for Q1 2019 vs $2.2 billion during Q1 2020.
- Thanks to increased sales and its cash machine (customers payments are converted quickly) Amazon generated over $4 billion in cash from operations.
- The operating cash was partly offset by Amazon increased expenses to improve the capacity of the business, expand its shippings and fulfillments.
- The investing activities had a higher cash outflows due primarily to investment on the tech infrastructure to keep AWS growing.
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