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Is Boston a Good Fit for Amazon's (AMZN) Second Headquarter?

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Amazon.com,Inc. (AMZN - Free Report) is in the hunt for a second headquarter (Amazon HQ2 as it calls it) in North America that can accommodate as many as 50,000 employees. It plans to spend $5 billion for it.

The company said that jobs at HQ2 will mostly be in software development with average annual compensation of $100,000 over 15 years.

It has launched a special website where representatives of cities and regional economic development organizations can put up their responses to the proposal. It wants to wind up the response acceptance process by October and final selection by 2018.

We observe that Amazon shares have gained 31% year to date, underperforming the 50.7% rally of the industry it belongs to.

Citing people familiar with the matter, Bloomberg reported that several senior executives of the company wish to have HQ2 at Boston. The city itself was among the many that expressed interest immediately after the announcement.

Boston Mayor Martin J. Walsh gave enthusiastic comments like: “Boston could ‘absolutely’ handle an Amazon headquarters.” He added, “If Amazon wants an East Coast headquarters, I don’t see any city better in America than Boston, Massachusetts.” Moreover, Walsh finds it “an incredible opportunity -- $5 billion of investment and 50,000 new jobs.”

Amazon.com, Inc. Net Income (TTM)

What Amazon Prefers? 

Amazon prefers urban or suburban but metropolitan locations, home to more than 1 million people, offering a stable and business-friendly environment, real estate options and with resources to attract strong technical talent.

The location need not have to offer an urban or downtown campus, a layout resembling Amazon’s Seattle campus or a development-prepped site. Notably, Amazon has stressed on “communities that think big and creatively when considering locations and real estate options.”

What Boston Has to Offer?

Boston is close to Harvard University and Massachusetts Institute of Technology (MIT) that can offer strong technical talent that Amazon plans to recruit at HQ2.

Notably, MIT recently unveiled a major advance on voice-activated technology. This could be of interest to the maker of Echo smart speakers that are going great guns and helping it to sell products and services.

Again, East Boston hosts the Logan International Airport with regular flights to Seattle (Amazon headquarters) and Washington, D.C. Cost of living in Boston is lower than many other big cities and this could offer affordable options to Amazon employees.

Amazon already has an association with Boston. Its Robotics facility situated in Suburban Boston was founded by former Kiva Systems that Amazon acquired in 2012. The city is home to Amazon competitors like online home goods seller, Wayfair Inc. (W - Free Report) and cloud infrastructure services provider, Akamai Technologies, Inc. (AKAM - Free Report) .

Infrastructure and technology giant General Electric Company (GE - Free Report) is building its new corporate headquarters in the city. All these indicate that Boston can offer a stable and business-friendly environment, another of Amazon’s HQ2 criteria.

To Conclude

No matter which city Amazon picks, HQ2 will have a huge positive impact on its economy. Amazon in its press release notes that from 2010 to 2016, the company’s investments in Seattle have generated an economic impact of $38 billion in the city. That’s an additional $1.4 against each dollar invested in Seattle by Amazon.

City and state heads are surely eyeing a repetition of Amazon’s economic impact on Seattle in their own areas and thus have started gearing up to grab the opportunity.

Currently, cities and states are increasingly attracting technology companies as they bring in huge employment opportunities and attract other businesses, thus boosting the overall economy. They are ready to give away massive benefits mainly in the form of tax breaks in return as they know that economic development often outweighs loss in tax.

Amazon has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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