Amazon.com Inc. (NASDAQ: AMZN)
Amazon Becomes e-Pothecary, Analyst Rates "Top Pick," Target
$140
Amazon's investment in Drugstore.com is
another example of "the gates unlocking for a
flood of many more commerce
partner-distribution deals in the future,
thereby accelerating Amazon's path to
profitability," according to analyst Jamie
Kiggen of Donaldson Lufkin Jenrette who
rated the stock a "top pick" with a target price
of $140.
Amazon.com (NASDAQ: AMZN) , whose shares
have risen up to 75 times from its adjusted offering
price, is the prototype in the embryonic but
explosive electronic commerce industry.
Amazon's business is more than online retailing; it is a host site for e-commerce. Amazon
has a Yahoo-like ability to leverage its large audience, by selling space on its page. Thus,
there are higher margins and recurring revenues.
The investment in Drugstore.com (NASDAQ: DSCM) gives Amazon a foothold into the
potentially multibillion-dollar online prescription business without the risk of starting from
scratch. Amazon has invested in several online startups. Just last week, the company agreed
to acquire 5% of the outstanding shares of the privately held Greenlight.com, an online car
buying service.
According to founder and Chief Executive Officer of Amazon.com, Jeff Bezos, "we expect
more arrangements like this when it makes sense for customers. We're working to make
Amazon.com the only place where you can find anything and everything you might want to
buy online. What you are seeing today is a completely new component of that strategy." He
went on to say, "Amazon chose Drugstore.com to be our first partner with this level of tight
integration because they obsess over customers the way we do."
Under the agreement with Drugstore.com, Amazon.com receives $105 million under a 3 year
marketing agreement. Amazon.com agreed to invest $30 million in Drugstore.com, raising its
stake in the company to 28%. Customers will eventually use a single shopping basket and
procedure for both sites. Previously Amazon.com only carried gift certificates and had
temporary links for Drugstore.com.
With Greenlight.com, Amazon.com gets $85 million plus
warrants to raise its stake to 30% during the next five years.
In a research note, ING Barings analyst Tom Fogarty said that
"through Greeenlight.com, Amazon.com gains entry into a
leading online category". He continued to say that the Internet
influences over 40% of car buying decisions. In 1999 an
estimated $65 billion in car sales originated online. Tom
Fogarty sees auto retailing as a logical addition to
Amazon.com's current products and services.
Not all of Amazon.com's investments are publicly traded. But
that could change. With the market's enthusiasm for dotcom
opportunities, it may be Amazon's plan to profit from investments in and associations with
well-run tightly focused e-commerce start-ups and investors' desire to invest in them. Maybe
Bezos will purchase them all.
Although there is no guarantee that any of these companies will be profitable or an immediate
hit, it certainly benefits Amazon's balance sheet in the meantime. Amazon.com has invested
in other Internet retailers including HomeGrocer.com, Pets.com and Ashford.com (NASDAQ:
ASFD). Goldman Sachs (NYSE: GS) analyst Anthony Noto upgraded [Amazon] shares to a
trading buy from a market performer. |
