Amazon.com Inc. (AMZN) has announced that it will acquire privately held Kiva Systems, a warehouse automation solution, for $775 million in cash. The deal is expected to close in the second quarter of 2012. Shares jumped 3.9% from last Friday’s closing price, indicating a positive sentiment from investors.
Kiva’s technology streamlines the process of picking, packing and shipping e-commerce products for delivery. The company uses mobile robots and superior control software, providing a more automated system in the fulfillment centers.
The acquisition will give Amazon competitive advantages in delivering physical goods and will help to integrate and automate the supply chain in a better way. The deal will provide superior customer service by increasing the efficiency of the work flow in the fulfillment centers, leading to significant economies of scale.
Amazon’s fourth quarter earnings of 40 cents beat the Zacks Consensus Estimate by 24 cents, or 150%. However, Amazon’s operating expenses were up 35.1% sequentially and 54.9% from the year-ago quarter as the company invested aggressively in facilities such as data centers and fulfillment centers.
Fulfillment expense continued to grow from the year-ago quarter, although it was down sequentially. In 2011, the company opened 15 new distribution centers and now employs 65 centers worldwide. The acquisition will streamline the work process in the fulfillment center, thereby saving significant time, improving turnaround and reducing costs.
Amazon is one of the leading players in an extremely fast-growing market. In the near term, we believe that Amazon’s heavy investment in expansion of fulfillment centers will hurt margins. However, over the longer term, these will not be unwise investments made by Amazon, since differentiation among online retailers is difficult and better experience and support are the best drivers of traffic. We think that other online players, such as eBay Inc. (EBAY) and Google Inc. (GOOG) have the same game plan. Of course, competition from eBay, Apple Inc. (AAPL) through its iBooks app, Barnes & Noble, Inc. (BKS) and Google remains as strong as ever.
Amazon shares currently carry a Zacks Rank of #4, which translates to a Sell recommendation for the short term (1–3 months).
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