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Is the Middle East Amazon's Next Big E-commerce Target?

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Amazon.com Inc. (AMZN - Free Report) is reportedly buying a Dubai-based e-commerce company, Souq.com in principle.

Reuters reported yesterday that Goldman Sachs (GS - Free Report) is advising and helping Souq.com in matters pertaining to the deal. However, it did not shed light on the financials. 

Souq.com is a popular online shopping site in the Middle East and sells more than 1.5 million products to customers in the United Arab Emirates, Egypt and Saudi Arabia. The company has secured $425 million of funding since its origin in 2005.

Amazon’s Biggest Deal Ever?

Amazon is not much active on the merger and acquisitions front and prefers building to buying. The company’s largest deal to date is the buyout of live-streaming gaming network, Twitch for $970 million in 2014.

Though the price of the Souq.com deal is still unknown, it is rumored to be valued at $1 billion. If the speculation eventually comes out to be true, the deal will be the biggest for Amazon.

We note that Amazon’s shares appreciated 45.5% in the last one year compared with the Zacks Internet Commerce industry’s gain of 37.4%. International expansion is expected to back the momentum going ahead.

The Deal Could Help Tap a Potential Market

Though Amazon has more or less been successful in penetrating every region worldwide, it has still miles away to go before gaining a strong foothold in the Middle East region and Africa.

Amazon’s retail market share is still relatively small in these markets, but there is a good possibility of an increase in the next few years. If this happens, the company will see an additional several billion dollars a year in revenues.

Amazon.com, Inc. Revenue (TTM)

This deal, if it materializes, will help Amazon to establish a presence in countries like Egypt, Saudi Arabia, and the UAE markets like Egypt, Saudi Arabia, and the UAE.

Amazon is probably picking up the buy option to build in the Middle East to avoid bureaucratic barriers in attaining regulatory approvals and signing up suppliers and vendors in each country.

Getting Early Mover Advantage is Essential

Giants like Amazon and eBay (EBAY - Free Report) could not make any remarkable progress in China in the presence of local company Alibaba (BABA - Free Report) . That way, expansion in the Middle East makes sense as the market is still untapped by any global player and therefore offers plenty of room for growth to Amazon.

Competition in online retail is heating up and the increased use of the Internet in both developed and developing economies is attracting other players to the space. Under such circumstances, trying to gain a first mover advantage in a relatively untapped market makes sense.

Currently, Amazon is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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