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Rating Action:

Moody's upgrades Amazon to A3; outlook positive

08 Nov 2018

New York, November 08, 2018 -- Moody's Investors Service ("Moody's") today upgraded Amazon.com, Inc.'s (Amazon) long-term rating to A3 from Baa1, including its senior unsecured rating and legacy Whole Foods Market, Inc. senior unsecured rating to A3 from Baa1, and affirmed Amazon's Prime-2 commercial paper rating. The outlook is positive.

"Today's upgrade recognizes the improvements in operating performance of Amazon's core retail business during 2018 such that debt/EBITDA has improved by over 1 turn from FYE 2017's level, with commensurate improvement in other key credit metrics, including interest coverage," stated Moody's Vice President Charlie O'Shea. "In particular, the North America business has generated significantly improved operating income, which more than offsets the continuing losses in International, with the result Amazon's overall P&L is 'growing into' the balance sheet, which exploded during FYE 2017 to the tune of an almost $35 billion increase in total debt to around $63 billion, and was used to fund Amazon's myriad growth initiatives, as well as acquire Whole Foods," continued O'Shea. "AWS continues to generate the majority of operating income, with margins continuing to expand despite almost exponential sales growth and heightening competition in this sector, and provides significant support for the rating, which is increasingly important during periods of heavy investment," added O'Shea. "As reflected in the positive outlook, there is a path to A2/Prime-1, which will depend on the sustainability of present levels of overall profitability."

Upgrades:

..Issuer: Amazon.com, Inc.

....Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1

..Issuer: Whole Foods Market, Inc.

....Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1

Outlook Actions:

..Issuer: Amazon.com, Inc.

....Outlook, remains Positive

Affirmations:

..Issuer: Amazon.com, Inc.

....Senior Unsecured Commercial Paper, Affirmed P-2

RATINGS RATIONALE

Amazon's ratings continue to reflect its leading competitive position in multiple segments of online retail and the continuing strength and profitability of Amazon Web Services ("AWS"), which accounts for the majority of the company's operating income, as well as its significant cash flow generation and excellent liquidity profile. This excellent liquidity is centered around cash and short-term investments of around $30 billion at the Q3 ended September 2018, with approximately $15 billion due to favorable working capital as it represents the excess of accounts payable over inventory. The credit profile also recognizes the lack of transparency with respect to strategy and financial policy, the high degree of potential volatility in operating profit due to the level and cadence of investment funding for various growth initiatives, and the increased online competition from brick-and-mortar retailers, as well as the increasing competitive threats from larger, better-capitalized companies in AWS' universe. The 2017 acquisition of Whole Foods enhanced the company's credit profile as it helped "kick start" Amazon's existing grocery business and indicates a recognition that an effective brick-and-mortar presence, at least in this segment, is beneficial and likely vital to the company's continued retail growth strategy.

The positive outlook reflects the strength of Amazon's business model and the current favorable operating performance of the company, as well as our view that AWS will continue to grow and generate significant profits, which will lead to further improvement in the company's quantitative credit profile.

Ratings could be upgraded if Amazon sustains the recent improvements in operating performance as measured by operating income stability, which would be validated by RCF/net debt sustained above 50%, debt/EBITDA sustained around 1.75 times, and EBIT/interest approaching 7 times. Additional factors that would be critical for an upgrade would be the continued maintenance of excellent liquidity, as well as increased disclosure with respect to strategy, performance, and financial policy.

Given the upgrade, there is little downward rating pressure, however ratings could be downgraded if liquidity were to weaken materially, or if either operating performance deterioration or financial policy decisions resulted in debt/EBITDA rising above 3 times or EBIT/interest falling below 5 times.

Headquartered in Seattle, Washington, Amazon.com, Inc. is the world's largest online retailer and a leading web-service provider with annual revenues of around $221 billion.

The principal methodology used in these ratings was Retail Industry published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Charles O'Shea
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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