By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE ACQUISITION
- Acquirer: Amazon.com
- Target: Zoox
- Estimated Value: $1.2B
- Financing: n/a
- Announcement Date: 26/06/2020
- Acquirer Advisors: n/a
- Target Advisors: n/a
Amazon has acquired self-driving start-up Zoox for more than $1.2B, making it the ecommerce group’s biggest investment into the autonomous vehicle sector. It represents a 63% haircut on the $3.2B valuation from July 2018.
The deal would be Amazon’s second-biggest acquisition. Amazon’s biggest deal was the 2017 acquisition of Whole Foods, the upmarket grocer, for $13.7B.
The deal comes as companies specialising in developing robotaxi services were hit hard by the pandemic. Zoox made about 100 employees redundant in April in an attempt to cut costs.
COMPANY DETAILS (Amazon.com)
Amazon.com is the world’s largest online retailer selling consumer products and subscriptions internationally.
It sells merchandise and content from third-party sellers through physical and online stores. The company also manufactures and sells electronic devices, such as Kindle. In addition, it offers programs that allow authors, musicians, filmmakers and app developers to publish and sell content.
Additionally, it offers Amazon Prime, a membership program, which provides free shipping of various items and access to streaming of movies and TV series.
- Founded in: 1994
- Headquartered in: Seattle, United States
- CEO: Jeff Bezos
- Number of Employees: 840,400
- Market Cap: $1.35T
- EV: $1.37T
- LTM Revenue: $296.27B
- LTM EBITDA: $36.27B
- LTM EV/Revenue: 4.62x
- LTM EV/EBITDA: 37.77x
COMPANY DETAILS (Zoox)
Zoox is unique in the self-driving sector as it is seeking to succeed in the triple challenge of:
- developing a driveless system
- building a ride hailing network (similar to Uber and Lyft but with robots)
- manufacturing bespoke autonomous vehicles
Through a comprehensive focus, on the entire autonomous ecosystem, including a purpose-built vehicle, software and mobility service, they are planning to develop a safe autonomous mobility platform.
All of their software is being developed in-house, including all components of the autonomous mobility technology, such as spanning perception and prediction ability of the software.
Zoox has also recently announced that they developed a fully autonomous vehicle that lacks a steering wheel or pedals. They haven’t yet showed it to the public, but a trial of the vehicle is expected to be launched this year.
- Founded in: 2014
- Headquartered in: California, United States
- CEO: Aicha Evans
- Number of Employees: 1,000
- Market Cap: n/a
- EV: n/a
- LTM Revenue: $100M
- LTM EBITDA: n/a
- LTM EV/Revenue: n/a
- LTM EV/EBITDA: n/a
STRATEGIC RATIONALE
CORE OPERATIONS ENHANCEMENT:
Warehouse robotics
Warehouse robotics are a simpler task than open road automation. This is why, in the short-term, an acquisition of Zoox might help accelerate Amazon’s warehouse operations. As a result, we could see more autonomous “pickers” driving the products around the warehouses to be packed, significantly improving Amazon’s logistics and reducing their operating costs.
Supply chain automation alongside electrification
In 2019 Rivian, an electric vehicle start-up which took $700m investment from Amazon, announced it is going to make 100,000 electric delivery vans for Amazon.
At the time, the rationale behind this investment was that delivery vans are perfect for electrification. They have relatively short routes with a lot of city driving, and the petrol savings make them economically viable.
It looks as Amazon is trying to build upon this rationale with its planned acquisition of Zoox. Automation of delivery will optimize the supply chain through reduced delivery costs. Automated vans are far less likely to be involved in a crash and will probably be also more efficient and quicker at optimizing routes real-time than their human counterparts, creating efficiency gains and reducing expenses associated with supply of products.
Analysts at Morgan Stanley estimate the potential for Amazon to develop a “more efficient long-term delivery network” with Zoox technology could save the company $20B a year.
Improved quality of grocery business
Automated supply chain may enable a quicker delivery of fresh groceries to Amazon’s Whole Foods Market stores which they acquired in 2017. Fresher food on the shelves may win over more customers, challenging the likes of Lidl and Aldi, potentially generating more sales in the long-run.
EXPANSION INTO NEW MARKETS:
Third party delivery service
Recently, Amazon launched a third party delivery service called Amazon Shipping which poses a direct challenge to UPS and FedEx. Automation of the delivery process with self-driving autonomous vans would create significant cost synergies for Amazon. As result they would be able to offer shipping services at more convenient and cheaper rates, potentially stripping away FedEx’s market share which currently stands at over 30%.
Ride hailing
With Amazon’s capital, Zoox may be able to significantly expand its R&D, enabling them to fulfil the founder’s goals faster than expected. If Zoox outpaced rivals such as Uber at developing autonomous cars then Amazon could potentially tap into another market which is expected to grow by 18% between 2020–24, further expanding its revenue streams.
(Electric) self-driving consolidation
The acquisition will likely mark the beginning of a consolidation in the self-driving world. That’s because there are arguably only two companies (Amazon and Google) that can support the research and development intensity required without having to constantly return to the capital markets.
Also, because a future where all cars operate in the same technological environment, and can interact with the required state infrastructure, will require a level of standardisation which will naturally favour the two biggest players. It is likely that in 20 years the self-driving industry will resemble Airbus and Boeing’s stranglehold over aerospace.
