Amazon.com Inc. (AMZN) has announced that it will acquire UK-based online bookseller, The Book Depository International. The acquisition will add over six million titles to Amazon’s already large stock of books.
The cost of the transaction was not revealed and the acquisition is subject to customary closing conditions, including regulatory approvals.
It is unclear whether The Book Depository will retain its individuality and continue to operate as a separate website or if it will be folded into Amazon.com. But in any case, Amazon will reduce its competition in the e-commerce market as the Book Depository is one of its major rivals.
Amazon has an internationally focused website in the United Kingdom and the acquisition of The Book Depository should allow it to increase its exposure in the European market. Additionally, Book Depository is rapidly growing in Australia due to its low prices and free shipping. As a result, this acquisition will diversify and widen Amazon’s international base.
Amazon’s earnings of 44 cents per share in the first-quarter of fiscal year 2011 ending March 31, 2011, were 16 cents or 26.7% below the Zacks Consensus Estimate, on revenues that beat the Zacks Consensus by 3.6%.
The revenue miss in the last quarter was largely on account of higher operating expenses, as Amazon remains extremely focused on building its infrastructure for expansion, particularly across international markets.
The acquisition of The Book Depository, which generated £2.3 million in operating profit in 2010 and had an estimated turnover of almost $200 million (£120 million) in 2011, was likely in furtherance of this international expansion strategy. Given The Book Depository’s recent results, it is clear that the acquisition will improve Amazon’s financial performance in the near future.
Amazon is one of the leading players in an extremely fast-growing market. The Book Depository acquisition will increase users, units and partners and help Amazon grow in the attractive U.K. e-commerce market. Of course, competition from eBay Inc. (EBAY), Apple Inc (AAPL) through its iBooks app, Barnes & Noble, Inc. (BKS) and Google Inc. (GOOG) remains as strong as ever.
We are maintaining our Neutral rating over the long term (6–12 months) on Amazon. Currently, the stock carries a Zacks #3 Rank, indicating a short-term Hold recommendation.
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