Why Amazon Is Spending $1B on a Doorbell Company

E-commerce and cloud computing giant Amazon.com Inc. (AMZN) is making a billion-dollar bet on a smart home security and a doorbell company called Ring, marking its second-largest acquisition to date. Taking over the six-year-old startup, which was rejected on the popular TV show “Shark Tank,” is part of the Seattle-based retail behemoth’s larger initiative to double down on its Key platform, a service that combines a smart security camera and a smart lock for keyless entry, guest access and, most relevant, in-home deliveries. Two months ago, Amazon bought out Blink, another maker of video doorbells, that allows homeowners to view a live feed of their door on their smartphones. (See also: Amazon Market Cap May Cross $1 Trillion in a Year.)

Amazon’s race to deliver packages inside consumers’ homes comes amid heated competition from players such as Walmart Inc. (WMT) and Target Inc. (TGT) as they attempt to revamp sales and double down the booming online retail space. The convenience of in-home delivery, and the protection it poses against “porch thieves,” could give Amazon another edge against its rivals. 

In the smart home space, the new technology positions Amazon more firmly against a growing number of rivals including Apple Inc. (AAPL), Alphabet Inc.’s (GOOG) Google Nest platform and other smart home hardware startups. 

Ringing Endorsements

AMZN shares are up about 0.5% on Wednesday at $1,520.18, reflecting a 30% spike in the first two months of 2018, far outpacing the S&P 500‘s 3% gain over the same period. 

Loop Capital reiterated a buy rating and a $1,600 price target on AMZN stock on the news, indicating that Ring looks like a valuable asset for the firm, as reported by Barron’s. Analyst Anthony Chukumba noted that the doorbell company’s products are not only selling on Amazon but also at big-box retailers including Best Buy Co Inc. (BBY), Target and Walmart. The Santa Monica, Calif.-based startup has attracted more than $200 million in funding from high-profile backers including Virgin Group founder Richard Branson and Goldman Sachs Group Inc. (GS). 

GBH Insights’ head of technology research, Daniel Ives, suggests that Amazon’s back-to-back security company acquisitions reflect the company’s “aggressive initiative to build out its smart-home ecosystem in 2018” as it seeks a slice of what he estimates will be a $20 billion market by 2021. (See also: Why Walmart’s Stock Can Rise 35%.)