Please ensure Javascript is enabled for purposes of website accessibility

Amazon's Acquisition of Selz Speaks Volumes for Shopify, BigCommerce

By James Brumley - Feb 23, 2021 at 10:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The king of online shopping is showing fresh interest in a business it's already abandoned. Take the hint.

If a recent deal is any indication, e-commerce behemoth Amazon (AMZN 0.19%) is looking beyond its own online platform for growth. Australian-based Selz quietly reported last month that it's signed an agreement to sell itself to the online shopping giant. Selz helps small companies establish and manage their own e-commerce presence, a la Shopify (SHOP 8.52%) or BigCommerce (BIGC 8.23%).

It's a curious move for several reasons, chief of which is the fact that Amazon previously offered its own suite of tools called Webstore. That home-grown service was shuttered in 2016. The fact that it's now changing its mind with the purchase of an existing platform is telling, to say the least. It says there's something to the idea that vendors want more control of their sales process, rather than being part of a massive mix of competition at Amazon.com.

A handshake

Image source: Getty Images.

A rapidly changing e-commerce market

In many ways, it's the inevitable evolution of e-commerce.

At one point Amazon.com was the only way for many sellers to connect with enough online shoppers to achieve viability. Now, however, consumers and companies are both web-savvy and don't necessarily need an intermediary like Amazon. To this end, Digital Commerce 360 estimates that Amazon's 2020 share of e-commerce spending in the U.S. clocked in at a healthy 31.4%, though that's down from 2019's proportion of 43.8%.

Yes, the pandemic played a role in this shift, and big players like Walmart (WMT -2.74%) and Target quickly revved their e-commerce engines when the opportunity arose. But the COVID-19 contagion also accelerated the existing growth of direct-to-consumer (DTC) sales following years of complaints from Amazon's third-party sellers that suggested Amazon itself competes unfairly with its sellers.

Many of the names that dropped Amazon.com are doing well with their own e-commerce operations too. Take Nike (NKE -2.68%), for instance. A year ago it stopped using Amazon as a sales platform, opting to develop its own e-commerce apparatus. For the quarter ending in November of last year, the company's digital sales were up 80% year over year. In the same vein, BigCommerce's top line is up 35% through the first three quarters of last year. Shopify just reported fourth-quarter results that translate into 2020 sales growth of 86%.

These are numbers Amazon can't afford to ignore, so it isn't. The acquisition of DTC-support name Selz says as much.

Amazon tips its hand

While the reasoning behind such a deal is clear, the reason Amazon specifically selected Selz isn't.

The company isn't publicly traded, and as such doesn't disclose its fiscal results. Amazon has said nothing about the acquisition either, other than to confirm it. However, given its relative obscurity, it's not a stretch to assume Selz isn't as big as market-leader Shopify, or perhaps even as big as its smaller rival BigCommerce. The two publicly traded entities sport market caps of $169 billion and $5 billion, respectively.

The latter is obviously the more affordable of the two to a suitor, although Amazon hasn't exactly been shy about spending big in the past to procure properties it's really, really wanted. Rather, the relatively limited deal with Selz suggests Amazon is more interested in Selz's technology than in its existing customer base, and it is perhaps looking to run a cheap experiment in the arena before it makes a bigger investment (up to and including a bigger acquisition down the road).

The reasoning is mostly irrelevant at this point. Amazon is interested in supporting online merchants outside of its flagship sales platform again, suggesting the online-DTC business model is enough of a threat that the giant either has to embrace it or combat it. It's embracing it, even if only half-heartedly for the time being. This embrace speaks volumes about the potential of BigCommerce and Shopify, and at least partially positions them as acquisition candidates.

Bottom line

Buying into a company because it's a potential acquisition target is a lousy lone reason to own a stock, by the way. Far more buyouts have been predicted than have actually panned out. Amazon could easily decide to maintain the status quo of its current partnership with Shopify, which allows Shopify's client companies to accept "Pay with Amazon" payments from customers. Shopify can also be used to tap Amazon to fulfill online orders when the need arises, or even manage multiple online stores including Amazon listings.

But read between the lines. Walmart also partnered with Shopify last year in an effort to introduce more third-party goods at Walmart.com. Major brands like Gillette and Ben & Jerry's are using BigCommerce to manage their e-commerce stores in-house.

These seemingly minor nuances add up in a big way, pointing the web-based shopping industry in a new kind of direction. That is, with a choice now available, more and more merchants are looking for self-managed solutions, and are less interested in relying on difficult third-party silos such as Amazon.

The clincher: A recent McKinsey survey indicates only 60% of consumer goods companies even feel remotely ready to respond to the clear rise of DTC. Where do you think these companies are going to turn for easy answers?

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$391.33 (8.52%) $30.71
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,146.38 (0.19%) $4.13
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$119.07 (-2.74%) $-3.36
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$106.44 (-2.68%) $-2.93
BigCommerce Holdings, Inc. Stock Quote
BigCommerce Holdings, Inc.
BIGC
$18.80 (8.23%) $1.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.