RealTime IT News

Amazon Soars On Wal-Mart Rumor

Stock of Amazon.com soared 25 percent in the first minutes of trading today on reports that it may be in negotiations for an e-commerce alliance with Wal-Mart Stores Inc. The concept drew a positive reaction from market analysts.

The stock was at $12.50 just after the opening bell, up from a Friday close of $10.

The news of a possible alliance with Wal-Mart (QUOTE NYSE:WMT) was reported in the UK's Sunday Times and was attributed to an unnamed executive. Both companies declined to comment on the report.

Analysts at Goldman, Sachs advised clients that such a partnership "could fill key voids or limitations in Amazon's business by broadening its appeal and improving the economics of its model."

"We would view these partnerships favorably and believe that Amazon shares shares are attractive for long-term investors, GS said. The analysts reiterated their market outperform rating for Amazon.

The Times said in its report that Amazon's founder, Jeff Bezos, and Lee Scott, Wal-Mart's chief executive, are in talks for a deal that might be announced within several months.

Amazon would become Wal-Mart's e-commerce supplier and Wal-Mart would gain access to the e-tailer's expertise in managing an Internet retail operation, from online ordering to home delivery, the newspaper said. With total fourth-quarter sales topping $56.5 billion, Wal-Mart is the largest retailer in the world and operates its own Web site at walmart.com.

Amazon also would gain a presence in Wal-Mart's 4,500 stores, a cash injection and a percentage of the sales it makes through Wal-Mart, the Times said.

The e-tailer, struggling to get into the black, announced in January that it was laying off 1,300 workers, or 15 percent of its staff.

Goldman, Sachs said that "given the current decelerating outlook for e-commerce growth, the impact of (such partnerships) has become increasingly important - as a vehicle to offset the slowing environment."

"In theory, Amazon can leverage its existing assets (technology expertise, large customer base, and global brand awareness) to create partnerships that allow it to enter new categories or accelerate progress in existing categories to cast the widest net of awareness and still own the consumer."

There are a variety of different categories that make sense for Amazon to pursue either in the near-term or the long- term, GS said, including groceries, apparel, HBA (health, beauty, and accessories), sporting goods, consumer electronics and other big-box retail categories.

And there would be cost-saving opportunities, too. GS said that Amazon might gain the ability to directly source its merchandise, buying direct from manufacturers, as well as reducing its marketing and promotional expenses.

Beth Cox writes about e-commerce for internet.com's Internet News channel.