Amazon Wanted More Than the Obvious

By Rick Aristotle Munarriz | More Articles
November 8, 2010 | Comments (1)

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Amazon.com (Nasdaq: AMZN ) is ready to make a bigger splash in consumer nondurables.

Following its nose, Amazon will be paying $500 million in cash and assume $45 million in debt to acquire Quidsi. The deal nabs the country's leading online retailer the parent company of Diapers.com and Soap.com. Quidsi also recently launched BeautyBar.com and reportedly had plans to launch a toy-specific virtual storefront next year.

This isn't simply a matter of Amazon buying into companies with generic domain names that are conducive to e-tail. It would have acquired drugstore.com (Nasdaq: DSCM ) or Overstock.com (Nasdaq: OSTK ) long before it would have snapped up Zappos or launched Endless.com.

Amazon is buying into a company that could have morphed into the Amazon of consumer nondurables before it has a chance to delve deeper into groceries and sundry items.

Diapers.com and Soap.com pride themselves on stocking a wide variety of namesake products at low prices. Taking a page out of Amazon's playbook for subsidized fulfillment, both sites offer free speedy delivery for orders meeting minimum price requirements.

It's never been about the value of a domain name with Amazon CEO Jeff Bezos. What does the Amazonian rainforest have to do with merchandising? High-end jeweler Blue Nile (Nasdaq: NILE ) and Liberty Interactive's (Nasdaq: LINTA ) RedEnvelope.com are other great examples of successful e-tailers that thrived with unusual domains.

Another move that may have factored into Amazon's buy decision is that Wal-Mart (NYSE: WMT ) was reportedly bidding on the company, too. Amazon's in a good groove these days. Net sales soared 39% in its latest quarter. The e-tailing behemoth has positive momentum heading into the holidays, and the last thing it needs is for the world's largest bricks-and-mortar chain to gain some dot-com street cred.

This morning's press release doesn't reveal if the Quidsi purchase will be accretive or dilutive to earnings, but it's at the very least a sound tactical move on Amazon's part.

Succeeding in e-tail isn't just about organic growth. Every so often you have to beat the competition to change a stinky diaper.

What do you think Amazon should buy next? Share your thoughts in the comment box below.

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Wal-Mart Stores is a Motley Fool Inside Value recommendation. Blue Nile is a Motley Fool Rule Breakers selection. Amazon.com is a Motley Fool Stock Advisor pick. Wal-Mart Stores is a Motley Fool Global Gains recommendation. The Fool owns shares of Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has been shopping online since the early 1990s, even before Amazon.com was around. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Report this Comment On November 10, 2010, at 8:45 AM, worldweb wrote:

They should buy www.etailstore.com it's a no brainer

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