By Udhaav Jhunjhunwala (Singapore Management University)
Deal Overview
Acquirer: Amazon Target: Zoox Estimated value: Approx. USD1.2 billion Announcement date: 26 June 2020 Advisors to Buyer: N/A Advisors to Target: Qatalyst Partners
Amazon, one of the world’s largest companies, is acquiring Zoox, a start-up developing autonomous vehicle technologies to power a fleet of “robo-taxis”. The deal reported to be worth more than USD1.2 billion would be Amazon’s biggest bet into autonomous vehicles following their participation in the USD530 million funding round of Sequoia-backed Aurora Innovation.
While Amazon announced that Zoox would continue operating as a standalone business continuing their path towards an eventual autonomous fleet of driverless vehicles, it is widely predicted that this move is a part of Amazon’s larger logistics strategy. Concurrently, the logistics strategy seeks to lower their delivery and fulfilment expenses, which amounted to USD37.9 billion in 2019.
"Like Amazon, Zoox is passionate about innovation and about its customers, and we're excited to help the talented Zoox team to bring their vision to reality in the years ahead."
Jeff Wilke, Amazon Worldwide Consumer CEO
Company Details (Amazon)
Amazon is an American multinational technology company which mainly focuses on e-commerce, cloud computing, digital streaming and consumer electronics. Its offerings also include subsidiaries in the form of Twitch and Whole Foods, giving them a presence in the e-sports streaming and supermarket sectors, respectively. It is one of the largest companies in the world and the second-largest private employer in the USA as well.
Founded in 1994, headquartered in Seattle, USA Founder and CEO: Jeff Bezos Number of employees: 935,000 (as of April 30 2020) Market Cap: USD1.44 trillion
EV: USD1.47 trillion LTM Revenue: USD296.3 billion
LTM EBITDA: USD36.2 billion LTM EV/Revenue: 4.96x
LTM EV/EBITDA: 35.83x
Company Details (Zoox)
Zoox is an American autonomous vehicle company. They are developing a fully autonomous, electric-powered, purpose-built fleet of vehicles or “robo-taxis”.
Founded in 2014, headquartered in Foster City, California
CEO: Aicha Evans Number of employees: 900 Market Cap: N/A
EV: USD1.2 billion (assumed from acquisition price) LTM Revenue: Undisclosed
LTM EBITDA: Undisclosed LTM EV/Revenue: N/A
LTM EV/EBITDA: N/A
Projections and Assumptions
Short-Term Consequences
In the short term, the acquisition of Zoox makes sense for Amazon as it gives them a seat on the table when it comes to the future of autonomous driving technology. While Amazon already has an internal team working on this, the acquisition gives them immediate access to a team of close to 900 talented people allowing them to significantly boost their capabilities going forward. Despite being Amazon’s 2nd largest acquisition at USD1.2 billion in the last decade after the Whole Foods acquisition for USD13.7 billion, it is at a steep discount to the USD3.2 billion valuation at which Zoox last raised money in 2018.
For Zoox, the acquisition makes sense as it was severely impacted by the coronavirus pandemic due to which they laid off 100 employees in May 2020. It was widely reported that they were looking for investments to continue the development of their “robo-taxis” and getting access to Amazon’s deep pockets will certainly accelerate this aim of theirs.
Additionally, the autonomous driving industry has seen interest cool down in recent years as much of the focus has shifted to large players like Google’s Waymo and General Motors’ Cruise. With Amazon’s reputation for disrupting every industry it enters, this might bring autonomous vehicles back into the spotlight, especially in a post-pandemic world.
Graph: Notable Acquisitions by Amazon (CB Insights)
Long-Term Upsides
While it is unlikely that Amazon has plans to operate a fleet of autonomous vehicles competing with Uber and Lyft, they certainly have the option to pursue that route if they wish to through this acquisition. Consumers spend USD5 trillion annually on ground transport, far more than they spend on retail, making the industry extremely lucrative and enticing. It should also be noted that other giant companies like Google and Apple are also looking at the autonomous vehicles business.
Amazon has a well-stated long-term goal to build its own logistics network and reduce reliance on third parties such as FedEx and UPS. To achieve this, they have invested heavily in their own aircraft fleet as well as automated delivery drones and this seems to be another investment on that front. While Amazon has created the illusion that everything has free shipping, the reality is that the cost of shipping does indeed matter. The creation of a robotic delivery fleet by Amazon would be huge in terms of efficiency and cost savings. Analysts at Morgan Stanley predict that Amazon’s shipping costs will rise to USD90 billion in the coming years and the development of a more efficient long-term delivery network using Zoox’s technology has the potential to save Amazon up to USD20 billion a year.
Risks and Uncertainties
Full Level 5 autonomous vehicles (without a driver at any point) are still a long way from being seen on roads. Zoox is not only building technology to convert existing vehicles into L5 capable vehicles but is also designing and planning to manufacture its own fleet. This begs the question of whether a market even exists for its core product today.
However, as is widely expected, if Amazon wants Zoox to shift its attention from building passenger vehicles to delivery vehicles, there is the risk of a cultural clash as everything the start-up aimed for initially will be made redundant. It is also unclear if the technology built by Zoox will be directly transferable and applicable for a delivery fleet.
With the second-largest workforce in the USA and employee unions in 11 states have staged protests this year already, Amazon is under pressure to improve the wages and conditions of its workers. As automation is poised to play a crucial role in the future for Amazon, particularly in terms of reducing its shipping and fulfilment expenses, this automation will come at the expense of human labour. This increases the prospect of rising unemployment rates as workers are replaced by machines, bringing about additional scrutiny from labour unions.
"We have made great strides with our purpose-built approach to safe, autonomous mobility, and our exceptionally talented team working every day to realize that vision. We now have an even greater opportunity to realize a fully autonomous future."
Aicha Evans, Zoox CEO