Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For
Amazon’s (AMZN) - Get Free Report M&A team has never been so busy. The company recently announced the acquisition of two new companies: One Medical (ONEM) - Get Free Report and iRobot (IRBT) - Get Free Report.
The recent deals reveal that Amazon’s strategy for growth is purchasing and leveraging companies that:
- Share synergies with its a business model; and
- Possess a know-how regarding their products that would be too expensive for Amazon to develop in-house.
Considering that the Seattle-based behemoth’s shopping spree will go on, here are three sectors that I believe could be Amazon’s next targets.
Figure 1: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For
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(Read more from the Amazon Maven: Amazon’s iRobot Acquisition: What Wall Street Is Saying)
1. Cybersecurity
In times when every gadget is connected on the internet, data privacy is key.
Apple (AAPL) - Get Free Report has a strong appeal in this department. The Cuppertino-based titan is known for its secure software.
Does that influence customers to stay in Apple's ecosystem? The answer is most likely yes.
If there were frequent breaches in its data-security system, Apple’s customers would probably slowly flow to the competition.
Since Amazon is integrating its gadgets with internet-based services, having its customer base feel safe is crucial.
Because developing cybersecurity software requires experience, Amazon could acquire a company to leverage its know-how.
Also, a new cybersecurity arm could become an important revenue stream for the e-commerce giant. The industry, worth $86 billion in 2022, is projected to hit $298 billion in 2027, expanding at a compound annual growth rate (CAGR) of 13.3%.
2. Video Games
The gaming industry enjoyed a boost during the COVID pandemic and overcame the movie and the North American sports industries combined.
According to PWC, the global video game market was worth $214 billion in 2021 and is poised to grow at a 8.4% CAGR until 2026, reaching $321 billion.
Is this a consolidated market? Yes, but maybe not for long.
As the Amazon Maven has previously discussed, cloud gaming has become the holy grail for the industry. It will allow customers to save money and game publishers to better distribute their products.
“When you talk about Nintendo (NTDOY) - Get Free Report and Sony (SONY) - Get Free Report, we have a ton of respect for them, but we see Amazon and Google (GOOGL) - Get Free Report as the main competitors going forward. I don’t want to be in a fight over format wars with those guys while Amazon and Google are focusing on how to get gaming to 7 billion people around the world. Ultimately, that’s the goal,” said Phil Spencer, Microsoft’s (MSFT) - Get Free Report head of gaming.
Although Amazon has been fiercely fighting for a piece of this market through its original games New World and Lost Ark, I believe Amazon will give in and acquire a consolidated publisher.
In fact, a few months ago, I placed my bets on Electronic Arts (EA) - Get Free Report, Capcom, and Square Enix.
Unofficial report relived the possibility of a Amazon-EA deal on Friday, August 26, leading the video game company’s stock to a small rally.
Though CNBC reported Amazon will not bid for acquiring the company, there may still plenty of water to go under this bridge.
3. Credit Lending
Finally, we have credit lending — in this case, popularly known as “buy now, pay later.”
In times of inflationary pressure, a small incentive could be necessary for Amazon's e-commerce segment to regain traction.
Even though credit lending and online retail share great synergy, Amazon’s real strength would be taking advantage of its colossal amount of cash and its data analysis segment to both grab a significant share of the market and offer lower interest rates than the competition.
In the end, it could turn out to be a very promising move. According to Grand View Research, the buy-now, pay-later industry was worth $5 billion in 2021 and is projected to expand at a 26% CAGR from 2022 to 2030, reaching $39 billion globally.
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