After creating a lot of ripples in the smartphone market by launching the Fire Phone, online shopping giant Amazon (NASDAQ:AMZN) now plans to make its presence felt in the gaming space. Recently the company announced it has acquired Twitch, the world’s leading video platform and community for gamers, for almost $1 billion. Even the Wall Street responded positively to the news and shares of Amazon rose 0.04% in after-hours trading. So, why did Amazon go for the deal? Let’s take a look.
About the target and the deal
Twitch was incorporated in June 2011 with the mission to connect gamers across the globe. The company provides a unique platform where game enthusiasts can interact through chats, and broadcast live videos of games as they play. Though the name of the site doesn’t ring any bells for most, gamers are very much acquainted with the platform. According to Amazon, Twitch had more than 55 million unique visitors in the month of July. However, on an average, the site has 43 million viewers monthly.
- Warning! GuruFocus has detected 3 Warning Signs with AMZN. Click here to check it out.
- AMZN 15-Year Financial Data
- The intrinsic value of AMZN
- Peter Lynch Chart of AMZN
The startup has already bagged $35 million through 2 rounds of financing from VCs such as Bessemer Venture Partners, WestSummit Capital, Thrive Capital, Alsop Louie Partners, Take-Two Interactive Software, and Draper Associates. In word of Ethan Kurzweil of Bessemer Venture Partners,
“The company is the fourth-largest producer of peak Internet traffic, outpacing even behemoths like Facebook Inc. and Hulu LLC… Twitch streams more live video than [Walt Disney Co.'s] ESPN, [Major League Baseball] and [World Wrestling Entertainment Inc.] combined”.
Point to note here is Amazon wasn’t the only company interested in Twitch. Even the tech goliath Google’s (NASDAQ:GOOG) YouTube wanted to absorb the company and had also offered as much as $1 billion back in May this year. The entire discussion ended with Twitch turning down Google’s offer for Amazon’s. Amazon is parting with a sum of $970 million for Twitch and the deal is expected to close in the second-half of the year. After the closure, all of Twitch’s outstanding shares will be transferred to Amazon.
Why Amazon bought Twitch
While the street took the news in the best possible manner, many are still confused regarding Amazon’s logic for acquiring the startup. To put it simply, Amazon strongly believes in the future of gaming, and since sometime now the company has been expanding its reach in the world of gaming. Jeff Bezos, Amazon’s founder and CEO, mentioned in a press release –
“Broadcasting and watching gameplay is a global phenomenon and Twitch has built a platform that brings together tens of millions of people who watch billions of minutes of games each month – from The International, to breaking the world record for Mario, to gaming conferences like E3. And, amazingly, Twitch is only three years old… Like Twitch, we obsess over customers and like to think differently, and we look forward to learning from them and helping them move even faster to build new services for the gaming community.”
Amazon, actually, has several wins through this one single move.
- The company is already one among the major video game vendors globally, and joining hands with Twitch allows it to fit in better into the gaming ethos, while gaining popularity and acceptance from game enthusiasts
- Secondly, Amazon also has in mind the huge ad revenue potential that Twitch offers - with millions of users flocking to stream videos, the site acts as a massive ad magnet
- Thirdly, Amazon can benefit greatly by linking Twitch to its current list of offerings. The company can arrange to stream videos through its Fire TV offering, which already comes with a gaming controller, thus attracting gamers towards the offering
- Last, but definitely not the least, Amazon will gain access to huge amount of data and customer preferences regarding games, which the company can use to decide its online shopping offerings, or to offer marketing tips to game makers, or even to develop its own dedicated gaming console someday
Amazon is a perfect example of a dynamic technology company. It started its journey as an online book seller and slowly made its way into almost everything, making shopping as easy as breathing for its customers. The company has forayed into smartphones and tablets, and let’s admit, it has received worthy amount of recognition also. Keeping in mind all these, it’s safe to say that Amazon will be able to make the most out of this opportunity as well. Let’s keep a close watch on how things work out for this e-commerce major.