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How Zoox Acquisition Could Boost Amazon Stock

Amazon.com Inc. (NASDAQ: AMZN) is in advanced talks to buy the autonomous mobility company Zoox, The Wall Street Journal reports.

If a deal is reached, and that is not a certainty, it would give the e-commerce behemoth a foothold in the driverless car industry. Forbes reports that some investors are still hoping that Zoox can remain independent.

Under discussion is a deal that would come in at less than $3.2 billion, the valuation Zoox reached in a funding round in 2018, The Journal said, citing unidentified “people familiar with the matter.”

Assain Hussain, mobility analyst for Pitchbook, said in a note to investors that $1.1 billion would be a fair price for Zoox, even though it would be “a 65.6% haircut from its previous post-money valuation of $3.2 billion.”

A Three-Pronged Approach

Founded in 2014, Zoox has been developing electric-powered robot taxis. It is working to simultaneously create driverless technology, a ride-hailing network and a bespoke autonomous vehicle at scale, The Financial Times said.

Zoox’s three-pronged approach differentiates it from most other autonomous transportation companies, which generally concentrate their efforts only on technology or a specific function, like ride-hailing.

Zoox, based in Foster City, California, has been hit hard by the COVID-19 pandemic, laying off 10% of its employees and parking its test fleets, which had been operating on the streets of Los Angeles and San Francisco.

The startup “has been receiving interest in a strategic transaction from multiple parties and has been working with Qatalyst Partners to evaluate such interest,” a Zoox spokesperson said in a statement. Amazon has had no comment.

Several Suitors May Be in the Mix

Bloomberg News, citing “people familiar with the matter,” said other companies in the automotive and chip industries have talked with Zoox about potential investments.

Amazon has dabbled in autonomous vehicle technology, seeking methods that would allow the company to transport products to customers on its own. It established a team to work on driverless-vehicle technology a few years ago.

Analysts at Morgan Stanley estimated Wednesday that Amazon stands to save more than $20 billion a year in shipping costs with delivery via autonomous vehicles. The online retailer’s annual shipping costs are headed for the $90 billion-a-year level, the analysts said.

Automation has long been a strategic interest for Amazon. In 2012, Amazon bought warehouse robot-maker Kiva Systems Inc. for $775 million. Now the online retailer has tens of thousands of robots in its warehouses around the world.

In 2013, Amazon CEO Jeff Bezos announced plans for drone delivery of some packages. But that initiative has not reached scale yet. Last year, Amazon began testing a delivery robot named Scout in the Seattle area. It rolls along sidewalks, somewhat like a shopping cart.

Autonomous vehicles that could handle the “last mile” of Amazon deliveries to homes and businesses would be a big leap forward in logistics.

Amazon’s Stake in Aurora Innovation

In February 2019, Amazon invested in the autonomous-technology company Aurora Innovation, which was founded by former employees of Alphabet Inc. (NASDAQ: GOOG), Uber Technologies Inc. (NYSE: UBER) and Tesla Inc. (NASDAQ: TSLA).

Zoox was co-founded in 2014 by Tim Kentley-Klay, an Australian artist and designer, and Jesse Levinson, a Stanford computer scientist. Kentley-Klay was an effective spokesman for the company, bringing in investors and stoking excitement for it.

In 2018, the company had a successful $500 million venture capital funding round. A month later, the board of directors fired Kentley-Klay. He responded by tweeting that he had been removed “without warning, cause or right of reply.”

He was replaced as chief executive in 2019 by Aicha Evans, a former Intel executive.

Zoox’s autonomous driving systems rely on computing boards from Nvidia Corp. (NASDAQ: NVDA).

Amazon Thriving Amid COVID-19 Crisis

Although Amazon’s share price has dipped slightly this week, it is one of the few stocks that has thrived during the COVID-19 crisis. It has performed far better than the Dow Jones industrial average and the S&P 500. It has benefited from a surge in online shopping as millions of Americans have had to work from home.

Like most equities, Amazon’s price dipped in mid-March but by much less than many others. It rebounded quickly. Bezos has seen his personal fortune rise by more than $30 billion since the beginning of the year, based in large part on his Amazon holdings.

Amazon shares closed at $2,410.39 on Wednesday, up more than 25% since the beginning of the year. The 52-week price range for the stock is $1,626,03 to $2,525.45.

The consensus recommendation from analysts rates Amazon a Buy. The average price target is $2,700.00.