Amazon's Likely Next Weapon In Its Arsenal: AMC Entertainment
Summary
- AMC Entertainment Holdings has seen a massive decline in demand due to the ongoing coronavirus making it an attractive acquisition for Amazon.
- Amazon's entertainment sector can hugely benefit which include their Amazon prime video services to gain an upper hand against Netflix.
- With the rise in streaming services, is the future of AMC entertainment and brick and mortar theatre in danger?
Amazon(AMZN) is truly a revolutionary company with its numerous offerings from e-commerce to online streaming. With a market cap of more than a trillion dollars, Amazon has substantial capital for Research and Development, as well as Acquisitions. Successful acquisitions such as whole foods in the F&B Market or twitch for the gaming sector make Amazon a more diversified company that allows for cross-pollination: a factor Amazon truly benefits from. An Amazon Prime member might choose to go to whole foods for their grocery for that 5% off with their Amazon Prime membership and Amazon credit card. Amazon's goal is to expand its numerous services and become the market leader of that sector. However, in the online streaming industry, there is one clear winner right now - Netflix. Netflix had a 61.9% market share in the online streaming industry whereas Amazon prime just had 13%. To increase its market share, Amazon is rumored to buy AMC Entertainment(AMC).
Past AMC-Amazon merger news
News regarding the acquisition first became rumored in Mid May when AMC stock jumped 56% on heavy volume regarding a possible merger to Amazon. Four months have passed by and AMC has risen more than 80% since its May median price. With no clear demand for theatres due to the virus, Consumer optimism and high volume is driving the stock higher as it recovers from the Coronavirus lows. I believe now that Amazon has seen that there hasn't been much demand over the past 4 months which has resulted in higher losses for AMC, it can bag AMC at a lower price than May due to increased losses. There simply is no better time for Amazon to buy the largest theatre chain in the United States and use it to their advantage. Moreover, socially distant seating in movie theatres is happening and the experience one gets from watching a movie in a theatre is simply unparalleled.
Mutual Benefits for both companies.
Amazon is going to benefit from the merger in the long run simply due to the theatres being a distribution channel for Amazon Studios Original. It offered more than 100 titles in 2019 and 2020 alone. I believe that being able to ensure wide placement of Amazon's own films in its movie houses not only poses a threat to the rest of the film industry as a whole. Total U.S box offices collected more than $14 billion last year alone which would provide Amazon with a great benefit. 
The theatres are yet another way to get consumers into the subscription-based model which has been so rewarding for Amazon. AMC had already plugged its members with the subscription-based model with AMC Stubs A-List where a user can watch 3 movies a week for $20 a month. Amazon can very easily use a similar subscription basis for its exclusive prime video services in theatres in addition to the normal movies. Merging the theatre subscription model with Amazon Prime can be rewarding for Jeff Bezo's company.
For AMC, it is a simple way to get out of the industry as it is safe to say that they haven't adapted with time and technology. Their losses have decreased and the Coronavirus pandemic just made it ever so harder. They will benefit off by selling the company.
Rishabh's Take
With Amazon's stock price (AMZN) at more than $3,000 it might not be affordable for everybody, however, on the flip side (AMC) trading at $7.02 is still recovering from Coronavirus lows, and the added fact that Amazon might buy it makes it lucrative and thus I believe there is moderately high upside potential for the stock. Ever since the news broke out that Amazon's going to acquire it, AMC has only gone up.
Thus, in the short run, I believe that Amazon will bear losses with a merger with AMC as synergies will not be realized in a short time-span, however, in the long run with the integration of Amazon prime with the theatre subscription model, AMC and Amazon will end in a happy merger.
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