Amazon Acquires Kiva to Further Automate Warehousing, Reduce Expenses

Amazon (NASDAQ:AMZN) has announced the acquisition of Kiva Systems for $775 million to improve the efficiency of its warehouses and order fulfillment centers by using robots and automated warehousing technology developed by Kiva. ^[1] This will be Amazon’s second largest acquisition to date, and probably its most important, as it will reduce costs and enable Amazon to improve its warehousing capabilities to improve order fulfillment times. Amazon competes in the e-commerce and e-content space with companies like eBay (NASDAQ:EBAY) and Apple (NASDAQ:AAPL).

See our full analysis for Amazon’s stock here

Kiva’s technology could help boost Amazon’s margins

Kiva’s robots enable retailers to fill online orders quickly and with fewer workers. They have been used by Amazon’s recently acquired companies like Quidsi and Zappos. Given the massive scale of Amazon’s operations and its huge warehouse expenses – nearly $4.6 billion in 2011 – Kiva’s technology could help reduce Amazon’s operating expenses by a significant amount, thus boosting its infamously low operating profit margins.

We expect Amazon’s operating margins in its core businesses to improve, going forward. You can check out the impact of any changes in its operating margins on its stock value using the above chart.

We currently have a $205 Trefis price estimate for Amazon, which implies 5% upside to its current market price. Its online retail business accounts for around 85% of its total value.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Amazon Acquires Kiva Systems in Second-Biggest Takeover, BusinessWeek [↩]