As technology companies continue to generate cash and hoard it, some, like Amazon (AMZN) are looking at acquiring others to broaden their current offerings paving the road to prosperity for the Internet HOLDRs (HHH) the Retail HOLDRs (RTH) and the PowerShares NASDAQ Internet (PNQI).
According to insiders, Amazon, which was sitting on cash and short-term securities of $5.9 billion at the end of September, is currently nearing an agreement to buy Quidsi Inc., owner of Diapers.com and Soap.com. Furthermore, the Seattle based online retailer recently bought Woot.com, a site that offers a daily discounted item and has agreed to purchase BuyVIP, a fashion site, which will expand its presence in Europe.
The acquisition of Quidsi Inc., will enable Amazon to focus to penetrate a market of parents who have young children that use diapers and offer the ability to have this necessity delivered directly to the consumers front door. Additionally, the acquisition will take out a competitor in the e-commerce space making Amazon that much stronger.
At the end of the day, it appears that Amazon is utilizing its cash reserves to acquire firms, lessen competition, strengthen its market share in the e-commerce space and compete with retail giants Wal-Mart (WMT) and Target (TGT).
As noted earlier, some ways to play Amazon and remain diversified include:
- Internet HOLDRs (HHH), which allocates 40.23% of its assets to Amazon, while also giving ample exposure to eBay (EBAY) and Yahoo (YHOO).
- Retail HOLDRs (RTH), which allocates 11.44% of its assets to Amazon and also includes Wal-Mart and Target in its top holdings.
- PowerShares NASDAQ Internet (PNQI), which allocates 8.65% of its assets to Amazon and gives ample exposure to Google (GOOG) and Chinese Internet search engine giant Baidu (BIDU).
Disclosure: No Positions