Amazon Fuels International Growth with The Book Depository Acquisition

Six months after acquiring European movie-rental site Lovefilm International Ltd., Amazon (NASDAQ:AMZN) recently agree to buy The Book Depository, U.K.’s largest dedicated online bookseller that provides free worldwide delivery of over six million book titles. ^[1] This acquisition will not only fuel Amazon’s international expansion but also help it benefit from The Book Depository’s unique service offerings, thus providing upside potential to Amazon’s stock price. Amazon competes with online retailers such as eBay (NASDAQ:EBAY), Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Best Buy (NYSE:BBY) in the overall retail market.

Our current price estimate for Amazon stock stands at $199, which is about 5% below its current market price.

Penetrating the European Market

Internationally, Amazon currently serves Germany, Japan, Austria, Canada, China, France, the UK and several Spanish speaking countries through its international sites. The Book Depository is one of the fastest growing European booksellers with over a million customers and will offer Amazon access to an established customer base in Europe to expand Amazon’s international reach further. The Book Depository also offer a U.K. based fulfillment center to serve Amazon’s European customer base. This can help Amazon grow its international share of books, DVDs & music sales.

Besides books, Amazon will also be able to push its other electronics and general merchandise to this customer base which will help Amazon increase its international share in these products.

Leveraging The Book Depository’s Model

Most of The Book Depository customers value its delivery model of world-wide free delivery of books along with its acceptance of PayPal payments. Amazon should be able to leverage on at least the free worldwide delivery model to increase customer satisfaction and thus be able to drive its sales, even in its existing markets. This should help increase Amazon’s market share of online books, DVDs and music sales in U.S.

Scenario ~10% Upside to Amazon’s stock

In a scenario where the international market share of books and electronics / general merchandise grow annually by 1 percentage point and 0.1 percentage points beyond our forecasts, respectively, this would together imply around 10% upside from our current estimate.

You can drag the trend line in the interactive charts above to see the potential impact on Amazon’s value.

See our full analysis and $199 price estimate for Amazon.

1. Techcrunch: Amazon acquiring The Book Depository [↩]