Published: Fri, January 12, 2018
Business | By Tara Barton

Amazon's next step? Buying Target by the end of 2018, analyst predicts


Amazon may make a bigger move into physical stores this year, according to one analyst. But Amazon would need to dig deep to determine whether Target's operations are worth the expense, according to Jim Fosina, CEO of Fosina Marketing Group. You see that Amazon sees a future where it's mostly online with some offline.

The prominent technology analyst and founder of Loup Ventures, Gene Munster, announced his eight predictions for 2018 and causing a stir in the retail industry is what he himself describes as his boldest prediction: Amazon will buy Target this year. "Getting the timing on this is hard, but seeing the value of the combination is easy". Assuming a 15% premium to the present value of Target shares, the acquisition would cost in the neighborhood of $41 billion, less than 10% of Amazon's market cap. "The idea of Amazon buying Target just seems so fantastic to me that I doubt it's true", Lee Peterson, executive vice president of brand, strategy and design at global retail design firm WD Partners, told Retail Dive in an email.

Of course, this remains speculation for now, but there's a lot of logic in it. Amazon has been testing out shopping concepts in recent years that move beyond what customers buy online. Target shares rose as much as 3.7 per cent on Tuesday in NY, while Amazon gained 1.6 per cent. Year-to-date, AMZN has declined 0.00%, versus a 0.31% rise in the benchmark S&P 500 index during the same period. "Target's shops would give Amazon a ready-built distribution network through which it could offer services like collect-from-store and return-to-store". Amazon has targeted mothers through promotions around Prime, including stocking Prime Video with children's content. This suggests the retail stock could be overdue for both upgrades and further price-target hikes.

It could be a win for Target, too, and it could arm Target and Amazon against a surging Walmart.

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It's easy to think that Amazon is exclusively an online player. "Amazon is No. 1, Walmart is No. 2 and Target is the distant No. 3". He's long predicted that Apple will release its own TV at some point and has pushed rumors that the company will produce its own auto, both of which have yet to come to fruition.

Munster sees Target as a good fit for Amazon primarily due to its shared demographic and "manageable but comprehensive store count".

In an all-cash deal, Amazon could end up with net debt surpassing $50 billion. Last month, CFRA bank analyst Ken Leon predicted that it will purchase a small or mid-size bank.

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