A deal announced this week between an Amazon subsidiary and struggling Colorado outsourcing service provider StarTek impressed investors and analysts. But whether the agreement results in the Seattle-based retail giant taking an ownership stake in the small Greenwood Village company is yet to be seen.
StarTek on Tuesday that it had expanded its existing relationship with Amazon.com NV Investment Holdings, a wholly owned subsidiary of Amazon, by giving it the option to buy up to a fifth of the company’s shares in exchange for $600 million in business.
StarTek agreed to issue Amazon warrants to acquire up to 4 million shares of common stock, which would represent 19.9 percent of StarTek’s common shares. But that moves forward only if Amazon generates $600 million in commercial services provided by StarTek. Amazon would be allowed to buy shares in StarTek for $9.96 each through January 2026.
The news sent StarTek’s stock up 25 percent on the week. Shares closed at $12.91 on Friday, up from $10.33 on Tuesday.
This is similar to other Amazon deals, according to Lake Street analyst Mark Argento, who has a buy rating on StarTek’s stock. He said Amazon isn’t buying anything but “earning in.”
“Amazon is like a king maker. They typically go out and find third parties that are best of breed to work worth, and then structure a deal with them that we’re going to send you this much business. They know that these small public companies when they announce they’re doing business with Amazon, they pop (with higher stock prices). And Amazon gets an equity play with the warrants,” Argento said. “But they (Amazon) only get it if they generate the revenue.”
Generating $600 million in revenue would be equivalent to twice StarTek’s annual revenue from 2016.
Argento said the existing outsourced services likely revolve around Amazon’s expanding Prime services, which is core to Amazon’s membership business.
Officials from StarTek and Amazon declined to comment further on the deal. StarTek, known for offering outsourced customer service support to clients that include T-Mobile and AT&T, has seen declining revenue as it business.
Quarterly revenue at StarTek was down in 2017, and the company reported a $1.2 million loss in the third quarter.
Argento said the new partnership could add $100 million in revenue for StarTek in 2019, and while Amazon stands to earn a stake in the Colorado company, it in turn should see good margins and less volatility thanks to a long-term relationship.
“Obviously, Amazon is very secretive, but they’ve done this before with a few other companies. They did a deal with Plug Power, which does power generation, and Air Transport Services, which does air freight leasing,” Argento added. He also upgrade his price target to $18, from $13.
StarTek hires workers to support retail, telecommunications, e-commerce and health care clients. It also has support centers in Greeley, Colorado Springs, Grand Junction and dozens of other cities around the world. In 2016, the company said it employed 1,112 people in Colorado.
