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Deal Radar 2008: Zappos Wants to be Amazon When it Grows Up

Posted on Monday, Jan 28th 2008

You have heard me talk about the verticalization of the web. Here’s a good example of a brand built on that premise. is the #1 online footwear retailer. Apart from retailing around 1,100 well known brands of shoes, boots, sandals, and athletic footwear, it also retails accessories including socks, wallets, belts, designer handbags, and diaper bags. (It recently added clothing, a move that is quite inconsistent with its brand!)

The Company claims to have 1,095 brands, 165,722 styles, 906,874 UPCs and 2,957,471 products. Zappos is known for customer service (24-hr call centre), free shipping and its return policy (365 day).

In 2000, Zappos raised $1.1 million from Venture Frogs. It later raised two more rounds of funding, totaling $35 million, from Sequoia Capital in 2004 and 2005.

Zappos is expected to have closed 2007 with revenues in excess of $800 million. It is projected to earn over $1 billion in revenues in 2008. Zappos has over 20% market share in the online footwear market. Zappos is profitable. has an Alexa traffic rank of 1,545. Compete estimates Zappos unique visitors to be over 5.1 million in December. On an average a user spends 8 minutes on Zappos and views 15 pages.

The Company is a good acquisition target but with revenues approaching $1 billion and the business being profitable, the IPO prospects are stronger.

Both Amazon and eBay would be interested in acquiring Zappos as it has built up a valuable business strong on fundamentals. I see more synergies with Amazon as it could acquire Zappos to expand its offering. However, eBay could use its stash of cash ($5 billion) to some good use and diversify. Auctions is slowing.

IAC could also look at acquiring Zappos to grow its retail business and expand its effort.

The Company wants to expand its services to sell everything and anything. An Amazon-esque strategy no doubt!

This segment is a part in the series : Deal Radar 2008

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Hi Sramana-

Your info is great. Based on the figures above, what sort of valuation would you place on Zappos as an acquisition vs. IPO — What would be an acceptable price for Amazon to pay?

Gordon Monday, January 28, 2008 at 3:13 PM PT

Hi Gordon,

I’ve been trying to make that assessment as well, but don’t have their profit margin numbers. Most of retail is relatively low margin (except luxury). However, if Zappos can convince the street that it can be another Amazon, profitability won’t be an issue with their market cap. They can get upto $5-6 Billion. Amazon, I don’t think, would pay that much, though.


Sramana Mitra Monday, January 28, 2008 at 3:36 PM PT

Please, where did you get your figures of Zappos closing 2007 revenues at $800 Million if Hoovers posts Zappos’ sales at only $135.3 million? I don’t know what happened. They went from $597 Million in 2006 to $135.3 Million in 2007? Is Hoovers’ data incorrect? What happened?

Stella Wednesday, March 5, 2008 at 6:06 PM PT

Hi Stella,

The $800 Million number is widely available on Zappos:


Sramana Mitra Wednesday, March 5, 2008 at 6:21 PM PT

responding to an old posting, but gross margins for fashion clothing & accessories are close to 50%, net depends on your medium.

btw, amazon would not buy zappos (i think) as amazon owns (their ver of online shoes)….

Ashesh Patel Tuesday, September 16, 2008 at 12:31 PM PT

If you look real closely at the numbers Zappos publishes, you will see they are with a GAAP disclaimer that the revenue represents GROSS MERCHANDISE SALES. A figure that is not accepted by any reasonable accounting principle I can think of.

Basically you are looking at a number before 30+% of those sales are returned (remember we are encouraged to send them back free!), the warehouse full of lime green shoes they can’t send back to the manufacturer (although I guess they are liquidating now through and the slow down in new customer acquisition (75% repeat customer is great news but what are the new customer acquisition strategies that will sustain their growth rate?).

It just seems like it is difficult to see what is under the covers. If the books were so fabulous why haven’t we heard a whiff about going public in like say 2 years.

Who knows? I kind of dig my free shipping and love, love the selection.

OnlineRetailRat Saturday, September 27, 2008 at 7:16 PM PT