Yes. Here's why:
- Amazon (ticker: AMZN) should have bought SHOP for strategic reasons. Amazon needs to transition its business to a more "virtual" model. It's doing that by adding search to each page, including pay-per-click ads on its product pages, and increasing its promotion of third-party retailers. But buying Shopping.com should have been an obvious move for Amazon, as it would have cemented Amazon's position as the leading shopping portal.
- Amazon could have extended the services it offers to its third party retailer partners. Amazon already offers web site services, marketing via Amazon.com, and logistics. Integrating comparison shopping into its site and purchasing the stand-alone Shopping.com web site would have allowed it to offer a further marketing channel to its e-commerce partners.
- Amazon should have bought SHOP on valuation. Given that Amazon's vast traffic is all shopping-oriented, Amazon would have been able to drive significant traffic through Shopping.com, greatly increasing SHOP's revenues and justifying a higher purchase price than eBay paid. I've already quoted Amtech Research analyst David Edward's view that eBay is picking up SHOP for cheap.
- Amazon is left weaker by other companies driving traffic to comparison shopping sites. eBay's purchase of Shopping.com will further promote comparison shopping, increasing pricing pressure and competiton among e-tailers like Amazon. Bad news for Amazon: it's missed Street estimates due to weakening gross margins, not disappointing revenue growth.
Could Amazon still bid more for Shopping.com? My gut feeling is "yes". Of note:
- eBay is purchasing Shopping.com for $21 per share in cash
- SHOP is currently trading at about $20.75
- there appears to be very little risk that the deal will fall through due to anti-trust issues or eBay pulling out
- there is some liklihood of a competitive bidding war for SHOP (other potential bidders: MSFT, AOL, IACI?)
- will some investors/traders will be attracted by the risk reward of buying SHOP at these levels?
Full disclosure: at the time of writing I'm long SHOP.