Amazon Inc.’s Acquisition Targets
Overview
Amazon.com Inc. (Amazon, hereafter) is the world’s largest online retailer and a major supplier of cloud services. The firm began as a book seller but has since evolved to sell a wide range of consumer products and digital media, as well as its own electronic gadgets, including the Kindle e-book reader, the Kindle Fire tablet, and the Fire TV, a streaming media adaptor (Wigmore, 2014). Jeffrey P. Bezos founded the company in July 1994, and it is headquartered in Seattle, Washington (Market Watch, 2021).
Amazon provides online retail purchasing services. It is divided into three business segments: North America, International, and Amazon Web Services (AWS). Retail sales of consumer items and subscriptions through North America-focused websites such as www.amazon.com and www.amazon.ca are included in the North America division (Market Watch, 2021). The International division sells consumer items and subscriptions via international-focused websites. The Amazon Web Services sector sells computing, storage, databases, and AWS service offerings to start-ups, corporations, government agencies, and academic institutions across the world (Market Watch, 2021).
Amazon is a hugely successful corporation that has grown exponentially over the previous few decades. Its stock price has grown by a staggering 1,380% in the last ten years, and it now trades at well over $3,300 per share (Brockman, 2021). Amazon also has a lot of opportunities for expansion, which makes investors hopeful about the company’s future. For example, earlier this year, it launched Amazon Care, a virtual healthcare programme. The business also intends to open physical locations in order to compete with retail behemoths such as Walmart. There’s a reason Amazon has been a Wall Street favourite for so long, and the firm shows no signs of slowing down anytime soon (Brockman, 2021).
- SWOT Analysis
| STRENGTHS | WEAKNESSES |
| Amazon has strong brand recognition due to its famous “smile” formed in the logo and is renowned across the world for rapid, efficient, and dependable online retailing and distribution. Amazon is firmly entrenched as the leader in the online retailing market in North America, with competitors such as eBay and Walmart (Gaille, 2021). It is a diversified firm that has provided products and services ranging from digital streaming to artificial intelligence with smart speakers in addition to being the world’s largest online shopping service (Someka, 2021). | Amazon has garnered negative attention in Japan, the United Kingdom, and the United States owing to tax avoidance (Madhav, 2021). Amazon’s stance on consumer security and safety has been called into doubt. There have been occasions where Amazon’s clients’ safety, security, and privacy have been jeopardised owing to violations of Amazon’s own security standards (Gaille, 2021). Amazon Web Services (AWS) is the company’s most profitable division. Any bad incident affecting AWS’s profitability will have a major influence on the company’s overall profitability (Gaille, 2021). |
| OPPORTUNITIES | THREATS |
| Amazon’s delivery network is expected to dominate the industry in a decade, according to the US Postal Service, UPS, and FedEx. This year, Amazon aims to build 1500 delivery centres in cities and suburbs across the United States (Madhav, 2021). With increased technology penetration and user adoption, internet connectivity, and disposable money in emerging economies, Amazon expanding into emerging markets would allow its current network of third-party merchants and independent partners to provide their services to a larger market (Gaille, 2021). | Amazon’s growth has sparked concerns among government authorities, which have accused the company of fraud, tax evasion, and antitrust violations. Amazon and Apple were recently chastised after Amazon agreed to ban third-party sellers of Apple items from its site (Gaille, 2021) The government is putting pressure on Amazon to hold it accountable for the harm caused by counterfeit items sold on Amazon by third-party vendors. Furthermore, the increasing cybercrime might have an influence on the company’s network security system (Madhav, 2021) |
Potential Targets
For a retail powerhouse like Amazon, the prospects for growth through acquisition of other firms are limitless. According to Salter and Weinhold (1981), in order for an acquisition to succeed, a system for selecting candidates with a high potential for producing value for shareholders is required.
However, Amazon has come under the scrutiny of antitrust regulators. Congress voiced concern about Amazon’s monopoly and data-privacy laws during a hearing before a House Judiciary antitrust subcommittee. Members explicitly asked if Amazon aids or hinders the success of other businesses. The European Union is also investigating into Amazon (Madhav, 2021).
- Udacity
Udacity Inc. is a company that offers consumers and businesses a digital career progression education platform. Online courses and ‘nano-degree’ programmes in “programming, business, AI/ML, autonomous systems, cloud computing, and real-world projects, as well as materials” created by specialists in collaboration with the firm, are available. Udacity caters to students all around the world. It aims to be a provider of educational services designed to prepare the world’s workforce for future jobs by allowing them to prepare for the most in-demand IT roles (Bloomberg, 2021).
Amazon already has a division dedicated for digital education, which signals that the company is interested in this space. Amazon Education aims to make education more accessible to everyone through Amazon’s digital goods, allowing anybody to study anything, anytime. Higher education students, professionals, and hobbyists can purchase digital learning items such as eTextbooks, online courses, and courseware from the team (Amazon, 2021).
Already having a presence in the sector, Amazon can benefit greatly by acquiring Udacity. Many students may resort to lower-cost choices as they protest at the cost of a digitally delivered higher education experience. Amazon may profit from an existing collaboration between AWS and Udacity by taking the firm in-house and extending the e-learning platform’s “nano-degree” services. Amazon would build a pipeline of technological talent, strengthen customer trust, and start disrupting education, one of the only sectors large enough to be viable (Gabriele, 2020).
- Fiverr
Fiverr International Ltd. operates an e-commerce platform where users can purchase and sell digital services. Its platform links enterprises with on-demand freelance digital talent. It operates in the various geographical segments: the United States, Europe, Asia Pacific, and the Rest of the World. Digital marketing, graphics and design, video and animation, writing and translation, and music and audio are all services provided by the company. Micha Kaufman and Shai Wininger started the firm in 2009, and it is located in Tel Aviv, Israel (WSJ, 2021).
Fiverr has looked up to Amazon in their growth strategy since the beginning as the co-founder Micha Kaufman says “For 20 years, the market has been educating us to do this one-click purchase on e-commerce. Can we do that for freelancing? The experience of buying a service online should be as easy as buying a product on Amazon.” (Smet, 2020). It’s clear that the goals of the two companies align and that Amazon will be able to incorporate the company under its belt smoothly and even revive the image of Fiverr completely for its betterment.
- Everlywell
Everlywell is another top company in providing online services. It is a health-testing company located in Austin, Texas that was founded in 2015. Customers receive in-home testing kits straight from the firm. Customers collect samples using the supplies provided and ship them using the associated prepaid expedited packing (Coelho, 2021). Using a secure platform, the firm produces outcomes rapidly. Everlywell has 32 different tests to choose from, including those for general wellness, men’s health, women’s health, energy and weight, and sexual health (Coelho, 2021).
Amazon’s aspirations in healthcare may be accelerated by Coronavirus. Amazon gained a foothold in the area with the acquisition of PillPack in 2018; now may be the time to add at-home diagnostic testing to the mix (Gabriele, 2020). In Seattle, Amazon Care — the division that normally handles internal employee issues — is collaborating with a Gates Foundation-backed programme to provide residents free Covid-19 testing kits. A similar approach is being considered in the United Kingdom. The actions follow its purchase of the online drugstore PillPack in 2018 (Lee and Nilsson, 2020).
A company like EverlyWell might pave the way for coronavirus testing in 2021, adding another jigsaw piece to the company’s aim to be “the new Red Cross.” (Gabriele, 2020). Therefore, the company would be a great acquisition target for Amazon to come out as a hero through the coronavirus crisis by helping people with their digital healthcare services through their unmatched logistics operation.
Final Recommendation
According to Salter and Weinhold (1981), a high potential for development and diversity are required for an acquisition to succeed. Each of the three recommended acquisition candidates for Amazon have these qualities as they are high growth and diverse companies in different fields. However, given Amazon’s current market position as a result of the coronavirus and the business’s recent success, purchasing Fiverr Inc would be a great decision for the company and is, thus, the final suggestion of this report.
The main rationale for acquiring Fiverr is that it perfectly matches Amazon’s growth and diversification plan. Amazon is searching for high-performing firms with growth potential, since it has $42 billion in free cash and another $42 billion in marketable securities that are ready to be invested (Annual Report, 2020). Fiverr has proven its potential by constantly increasing its revenue and improving its service provision since its launch in 2010. Fiverr recently revealed its 2021 Q1 sales numbers, revealing a year-over-year revenue increase of 100% to $68.3 million, one of the biggest Q1 revenue figures reported in the company’s history. The firm now expects the increase to continue through 2021, raising revenue growth forecasts from 46-50% to 59-63% (Greig, 2021).
Given Amazon’s success in establishing a Covid-free supply chain, providing in-home services may be a logical next step. Why would you book a plumber anywhere else if you could be confident that a plumber booked through Amazon was virus-free? Layoffs due to coronavirus may force people into freelancing in the digital arena. Fiverr frequently claimed to be constructing the “Amazon of services.” Fiverr’s recent 17% rise in active marketplace customers may be enough to draw Amazon’s attention (Gabriele, 2020).
Diversification will not only help Amazon spread its risk, but it will also help it overcome the current antitrust regulators’ scrutiny of the company’s operations, which is looking into whether it acted as a monopoly in the online retail industry, as the company could be breaking the law by unfairly crushing competition (Ovide, 2021). Acquiring Fiverr will diversify Amazon’s portfolio by entering the digital freelance industry, which can help it to avoid future claims about acting as a monopoly in one industry.
However, there are certain risks associated with this acquisition, as the House Antitrust Subcommittee may argue that Amazon’s acquisition is a monopolistic move, as earlier statements indicated that it has sued Amazon over accusations that the firm is breaching the law by unjustly crushing competition (Ovide, 2021). This could lead Amazon into more problems with Antitrust regulators. Therefore, the company should discuss this deal in great depth to work out specifics of the deal to ensure that it does not engage in monopolistic behaviour.
References
Amazon, 2021. Teams: Amazon Education. [Online]. Available at: https://www.amazon.jobs/en/teams/amazon-education. Accessed on 13 October 2021.
Annual Report, 2021. Amazon Investor Relations: Annual Report FY 2020. [Online]. Available at: https://s2.q4cdn.com/299287126/files/doc_financials/2021/ar/Amazon-2020-Annual-Report.pdf. Accessed on 12 October 2021.
Bloomberg, 2021. Company Profile: Udacity Inc. [Online]. Available at: https://www.bloomberg.com/profile/company/0618995D:US. Accessed on 13 October 2021.
Brockman, K., 2021. Amazon vs. the S&P 500: Which Is the Better First Investment? The Motley Fool. 30 September 2021. [Online]. Available at: https://www.fool.com/investing/2021/09/30/amazon-sp-500-which-is-better-first-investment/. Accessed on 13 October 2021.
Coelho, S. 2021. Everlywell Review: Are These Home Test Kits Worth It? Health Line. 25 March 2021. [Online]. Available at: https://www.healthline.com/health/everlywell-review. Accessed on 12 October 2021.
Gabriele, M., 2020. These Are the Companies Amazon and Facebook Might Buy Next. Medium. 18 May 2020. [Online]. Available at: https://marker.medium.com/big-techs-buying-spree-begins-a59e732ca55f. Accessed on 12 October 2021.
Gaille, B., 2021. Amazon SWOT Analysis Matrix: Opportunities and Weaknesses. 24 March 2021. [Online]. Available at: https://brandongaille.com/amazon-swot-analysis/. Accessed on 12 October 2021.
Greig, J., 2021. Fiverr reports 100% revenue growth in Q1 as buyers continuously purchase more expensive gigs. ZD Net. 06 May 2021. [Online]. Available at: https://www.zdnet.com/article/fiverr-reports-100-revenue-growth-in-q1-as-buyers-continuously-purchase-more-expensive-gigs/. Accessed on 12 October 2021.
Lee, D. and Nilsson, P., 2020. Amazon auditions to be ‘the new Red Cross’ in Covid-19 crisis | Free to read. Financial Times. 31 March 2020. [Online]. Available at: https://www.ft.com/content/220bf850-726c-11ea-ad98-044200cb277f. Accessed on 13 October 2021.
Madhav, 2021. Amazon SWOT Analysis. SEOaves. 19 August 2021. [Online]. Available at: https://seoaves.com/amazon-swot-analysis/. Accessed on 11 October 2021.
Market Watch, 2021. Amazon.com Inc: Profile. [Online]. Available at: https://www.marketwatch.com/investing/stock/amzn/company-profile. Accessed on 13 October 2021.
Ovide, S., 2021. The Big Deal in Amazon’s Antitrust Case. The New York Times. 25 May 2021. [Online]. Available at: https://www.nytimes.com/2021/05/25/technology/amazon-antitrust-lawsuit.html. Accessed on 13 October 2021.
Salter, M.S. and Weinhold, W.A., 1981. Choosing compatible acquisitions. Harvard business review, 59(1), pp.117-127.
Smet, A., 2020. Why Fiverr Is the Next Amazon. LinkedIn. 17 June 2020. [Online]. Available at: https://www.linkedin.com/pulse/why-fiverr-next-amazon-aaron-smet/. Accessed on 13 October 2021.
Someka, 2021. Amazon SWOT Analysis – Strategic Analysis of Amazon.com. 21 May 2021. [Online]. Available at: https://www.someka.net/blog/amazon-swot-analysis/. Accessed on 12 October 2021.
Wigmore, I., 2014. Amazon. What Is. April 2014. [Online]. Available at: https://whatis.techtarget.com/definition/Amazon. Accessed on 11 October 2021.
WSJ, 2021. Company Profile: Fiverr International Limited. [Online]. Available at: https://www.wsj.com/market-data/quotes/FVRR/company-people. Accessed on 13 October 2021.