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TMFEditorsDesk (< 20)

Amazon's Sportin' Some Stylish New Kicks

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July 22, 2009 – Comments (3) | RELATED TICKERS: AMZN

Amazon is adding Zappos to its shoe collection. The privately-held online shoe retailer, known for its rather Foolish culture, is being acquired by Amazon in a deal worth at least $800 million (or roughly $850 million according to other media sources).

From the WSJ:

Under the deal, Amazon will issue 10 million shares for the closely held company. Amazon will also provide Zappos employees with $40 million in cash and restricted stock units.

Amazon plans to keep management intact, and the company will operate its brand independently with headquarters in Las Vegas. The deal is expected to close this fall.

You can also read the email that Zappos CEO Tony Hsieh sent to the Zappos employees and catch an informative video from Jeff Bezos here: http://blogs.zappos.com/ceoletter

I'm not a big fan of the word "synergies", but Zappos is confident that there will be plenty of it in the form of technology, marketing, and possible itnernational expansion. Zappos is a big player of the online shoe market and Amazon is a HUGE player in online retail, so it makes sense, yes? Both companies have strong brands, and Endless.com -- Amazon's own shoe retail site --  hasn't exactly taken off. So Zappos will help fill a market that Amazon has tried to enter on its own. Since Zappos is privately-held, it's tough to exactly say whether this is a good deal or not, but it seems like a smart pairing. Zappos hit $1 billion in gross merchandise sales for 2008 and was growing, profitable, and cash flow positive as of last November, when they had to lay off 8% of their employees to reduce expenses. 

What do you think of this deal and are you a fan of Zappos? Let us know below.

- Katrina, who's only shopped at Zappos once but can't seem to stop shopping at Amazon. She doesn't own shares.  

3 Comments – Post Your Own

#1) On July 22, 2009 at 5:56 PM, TMFVermont (86.66) wrote:

If the shoe fits..buy it ;)

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#2) On July 22, 2009 at 5:58 PM, emmyandpea (< 20) wrote:

I frequently use Zappos, especially for their shoes and handbags.  I am also an avid Amazon buyer.  I think the marriage will be great.  Since Zappos offers designer names as well as names popular with specific demographic groups, I can see it bringing potential new customers to Amazon which might not have thought to venture there.  Debbie

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#3) On July 23, 2009 at 9:55 AM, TMFEditorsDesk (< 20) wrote:

Although I'm not sure how big Zappos is and can't determine if $850 million in mostly stock is a reasonable price, I'm a big fan of this deal.  The reasons:

1) Amazon is trading for a very rich multiple...57 times trailing earnings, 43 times forward earnings.  When your stock is that richly valued, buying up other companies in an environment where valuations and dealmaking are depressed is a shrewd move.  It's kind of like taking a trip to Canada back when a U.S. dollar got you a 30% discount due to the exchange rate.

2) They're planning on letting Zappos do their thing...very similarly to how Buffett treats his acquired companies. Surely there will be room for cross-learning and cross-promotion, too.

3) Buying a company with arguably better customer service has a small halo effect on your own customer service.  

-Anand (who would love to buy Amazon at a cheaper price)

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