Given the sometimes impulsive nature of CEO Jeff Bezos, Twitch should fit right in but not for the reasons that you think.
Read More: 10 Stocks Carl Icahn Loves in 2014
As Bezos put it, "Broadcasting and watching gameplay is a global phenomenon." And he's right. Until three years ago, this industry, which is sometimes referred to as "video in video games," didn't exist. Now it's a billion-dollar business.
Investors applauded the deal, and Amazon shares rose 0.73% in the wake of its announcement. The stock closed Monday at $334.02. Still, Amazon's shares have a way to go to recover from their selloff earlier this year. They're still down more than 16% on the year to date.
Bezos realizes Wall Street no longer drools at his "growth at all cost" mentality. Investors still wonder whether Twitch, which has more than 1 million active broadcasters per month, can be the answer to Amazon's profit woes? I think it can.
Let's not forget that Google (GOOGL) has turned YouTube, for which it paid $1.65 billion, into a lucrative advertising business. This was before anyone realized YouTube's potential. In fact, at the time some proclaimed that Google overspent on the acquisition.
Amazon was not available for comment, and emails to Twitch was not immediately returned.
The way I see it, Twitch has the potential to become the next YouTube. And for $1 billion, Amazon, whose video offerings are currently just TV and film, is now getting into user-generated content.
To that end, it's more important for investors to focus on where Amazon is trying to go. There's a reason why Google was reportedly interested in Twitch back in May. Now Amazon is suddenly armed with what may be the only real threat to YouTube's dominance.
This is because YouTube already has its own live video streaming service for gamers. Twitch's service, however, already comes integrated into both Sony's (SNE) PlayStation 4 and Microsoft's (MSFT) Xbox One console.