The online retailer Amazon.com Inc. (AMZN) recently announced the acquisition of Twitch, a video game streaming company in an all-cash deal for approximately $970 million. The acquisition is expected to close in the second half of this year.
Twitch, founded in 2011, is a live video broadcasting platform and community for gamers, which boasts over 55 million users per month. It allows worldwide gamers to connect with each other from anywhere through broadcast and chat. In November last year, it partnered with Microsoft’s (MSFT) Xbox One and Sony’s (SNE) PlayStation 4, which boosted its popularity. Additionally, Twitch distributes shows from gaming and media streaming associates including CBS Interactive’s GameSpot, Joystiq, Machinima Inc. and Destructoid.
The addition of Twitch — the second biggest acquisition by Amazon following the $1.19 billion buyout of Zappos.com Inc. in 2009 — will enhance the company’s online media and content offerings, giving it a competitive edge over other video streaming companies. Also, Twitch’s huge audience base will likely give Amazon enhance its advertising opportunities and increase its online store sales.
The e-Commerce giant has been taking various initiatives, such as investing in original television and gaming content, to expand its online video business.
In this respect, Amazon announced a significant investment in original programming, new seasons for some of its existing original shows and a deal with HBO for some of its older programs. Additionally, Amazon recently launched its Fire TV set top box, designed to attract gamers. The company also has an in-house gaming studio that focuses on creating innovative, fun and well-crafted games. It has released several games including Living Classics for Facebook Inc. (FB) and Air Patriots for Google’s Play store. It has been building its game development staff and encouraging software developers to create more video-game titles for its Fire TV set-top box, Fire Phone and Kindle Fire tablets.
Thus, the latest move is expected to strengthen its efforts to set foot in the gaming space. Additionally, the deal will help Amazon increase its revenues from video ads. However, stiff competition in the overall video ad market from companies like AOL Inc. and BrightRoll remains a headwind.
Amazon shares currently carry a Zacks Rank #4 (Sell).
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