Amazon.com inks Drugstore.com deal, gets upgrade

Jan. 2, 2002 4:43 p.m. PT

2 min read

Amazon.com (Nasdaq: AMZN) jumped 12 percent Monday on a Goldman Sachs upgrade and news of two deals.

The online retailer said Monday it will increase its stake in Drugstore.com, and will receive $105 million over 3 years as part of its deal to offer the online drugstore's products on its site. On Friday, Amazon said it was buying a 5 percent stake in online car buying company Greenlight.com.

Drugstore.com (Nasdaq: DSCM) shares rose 2 7/8 to 32, or 10 percent on news of the deal. Shares in Amazon were up 7 15/32 to 69 15/32, or 12 percent Monday, but they were still below recent highs. The stock dipped after the company said strong fourth quarter sales wouldn't help its bottom line.

On the news, Goldman Sachs raised its rating on the stock Monday to "trading buy" from "market outperformer." Amazon will report fourth-quarter results February 2. First Call's consensus estimate expects the company to lose 48 cents a share for the quarter, and $1.12 a share for the year.

Under the Drugstore.com pact, Amazon will integrate a number of Drugstore.com's shopping features, and create a shopping "tab" at Amazon. At the same time, Amazon will make an additional $30 million investment in Drugstore.com, bringing its total stake in the online drugstore to almost 28 percent

The Drugstore.com deal and the recent purchase of Greenlight.com shares further Amazon.com's strategy to become the place where consumers can find anything online. Amazon agreed to take a 5 percent stake in online car buying company Greenlight.com Friday, and will feature the private company on its site, making it accessible to 16 million online shoppers.

In return, Amazon will receive $82.5 million over five years and the opportunity to increased its stake in Greenlight.com by as much as 30 percent. The agreement makes Greenlight.com the first Amazon investment partner to be prominently featured as a part of its regular navigational structure, the company said.

Amazon originally acquired a minority stake in Drugstore.com in August 1998. In the past, Amazon has introduced Drugstore.com to its customers by offering temporary links on its home page and by distributing Drugstore.com gift certificates.