This $775 Million Amazon (AMZN) Acquisition Is Paying for Itself

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Amazon.com, Inc. (AMZN) is one of a handful of legitimate modern-day tech giants. Started by CEO Jeff Bezos in 1994, Amazon began as a humble online bookstore. Now, 20 years later, AMZN makes a litany of impressive high-tech products like smartphones, e-readers, and artificially intelligent audio speakers.

amazon-stock-kiva-robotsOh — it’s also the biggest online retailer in the world, although Alibaba Group Holding Ltd (BABA) is nipping at Amazon’s heels.

Unfortunately, Amazon’s e-commerce dominance hasn’t translated to eye-popping profits, as anyone who owns AMZN stock is aware. AMZN shares are off 17% this year as frustrated investors have grown tired of the online retailer’s “sell low, profit later” mentality.

Fortunately for AMZN investors, there’s a good omen on the horizon. A $775 million acquisition Amazon made back in 2012 could start contributing meaningfully to its bottom line by the end of this quarter.

Kiva Systems: The Rise of the Robotic Warehouse

Two years ago, Amazon shelled out $775 million for Kiva Systems, a company that makes robots that help retrieve and move products around the warehouse. At the time, Kiva was selling its proprietary robots to companies like Crate & Barrel and Gap Inc. (GPS), but after the AMZN buyout, Bezos put at end to that practice, preferring to have Amazon develop the technology internally and keep the robotic goodness within the company.

As far-fetched as it may sound, this is actually a great thing for anyone owning AMZN stock. The major issue for AMZN is its inability or unwillingness to expand margins, and because one of Amazon’s major selling points is the company’s ability to fill and ship orders very very quickly, Kiva’s robotic laborers promise to make Amazon’s system even more efficient.

Back in May, Bezos said he aimed to have 10,000 Kiva robots deployed in Amazon warehouses by the end of the year, a dramatic increase from the 1,400 AMZN had in operation at the time. Janney Capital Markets has estimated that a broad implementation of Kiva’s technology on this scale could save the company $400 million to $900 million per year — cutting Amazon’s cost of sorting, picking and boxing by up to 40%.

Not only will the handy Kiva robots cut costs, they’ll cut worker fatigue and do wonders for Amazon’s shipping speed. A Wall Street Journal report claimed the robots could save warehouse workers 20 miles of walking per day and increase the number of items employees are expected to scan from 100 to 300 per hour.

Conservatively assuming that the Kiva Systems acquisition hasn’t yet saved Amazon a penny — an unlikely scenario considering AMZN already had an army of 1,400 robots at its command back in May — the 2012 purchase still looks like a brilliant decision. If the company saves $650 million per year, the midpoint of the $400 million to $900 million estimate provided by Janney, it will take Kiva Systems all of 14 months to pay for itself.

Every dollar in cost savings after that will pass right on down to the bottom line and, hopefully, into the pockets of AMZN stockholders.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/11/amazon-com-inc-kiva-systems-robots/.

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