Is Amazon Buying AMC?

As far back as last August, speculation has circulated that Amazon may be eyeing an acquisition of AMC Networks (NASDAQ: AMCX). Millions of users became interested in Amazon buying AMC 2021. While many have speculated that the company could be eyeing the company as a standalone entity, a more likely outcome is that Amazon will be snapping up some of AMC’s channels and library. Of course, these assets don’t necessarily go together. But they do make for a compelling fit — specifically, AMC is the largest of the company’s five biggest channels.

Amazon Buying AMC:

The topic “Amazon buying AMC 2021” has become a keyword of millions of users due to various reasons. AMC is currently the third-largest provider of basic cable channels behind Walt Disney (NYSE: DIS) and Comcast (NASDAQ: CMCSA). But if Amazon’s looking to expand its reach, the network is a good bet.

Also, if Amazon is buying AMC’s channels’ packages, it’ll be able to offer what some analysts call a “TV Everywhere” solution to its viewers. That is, the service will be able to get some of its content (and its libraries) to its subscribers via the Amazon Channels platform. The rest of its portfolio may be attractive as well. Let’s see why “Amazon buying AMC 2021” is a prevailing topic:

Amazon Prime

Let’s see how Prime is playing a part in Amazon buying AMC. You’ve probably already heard by now that Amazon has started charging customers a fee to access its Prime service. But did you know that Prime is about more than just free shipping? As we’ve written before, it’s a one-stop-shopping solution to many aspects of modern life. And its price tag is a bargain compared to what you’ll pay from other retailers. Prime has an enormous value to Amazon, as it helps convert customers into shoppers and brings new subscribers onto the Prime ecosystem. Plus, it provides Amazon with an additional revenue stream when the company has already shown it’s willing to lose money to keep its Prime service afloat.

Prime is also great news for those looking for an alternative to cable TV. Because most of the cost is covered by the subscription fee, you don’t have to worry about whether or not you’ll have access to the networks you want. And you don’t need to deal with a programming grid that’s fragmented across dozens of channels. It’s the freedom to choose that’s so valuable. It is also reasonable that Amazon’s buying AMC in the future.

Why Amazon is Buying AMC?

Amazon buying AMC – this phrase has become a buzzword for various entrepreneurs and end users. Amazon has long been interested in expanding its content efforts, and it’s been hard to argue with the company’s success with its streaming services. Of course, the company already boasts three of the top-five streaming content providers in the world (Netflix, HBO Now, and Starz). That’s not an insignificant number of streaming options. But it pales in comparison to the potential that AMC has. The company has roughly a billion viewers, which is far more than Netflix, Hulu, and Starz combined.

The entertainment world is changing fast, and we don’t think AMC stock is going to keep up with the times. We think Amazon is buying AMC company for its revenue stream, as it represents an inexpensive way for the company to bolster its operations and expand into the streaming space. At the same time, the deal means that AMC has a new source of recurring revenue, which could also lead to higher operating profits in the future. And all of that is good for AMC stock.

Reasons Behind Amazon Buying AMC

The three reasons that plays vital role in Amazon buying AMC are defined here. Although AMC’s revenue and earnings look good on their own, the company’s operating margin could use a boost. That could help boost AMC’s profits, which may in turn lead to higher earnings per share. Let’s assume that AMC earns $1 in EPS in 2018. If the company gets an operating margin of 15%, then it could generate an additional $250 million in profits. In total, then, AMC could add about $1.30 in earnings per share to the stock price. Add that to the company’s $4.9 billion market cap, and it suggests that Amazon is paying a P/E multiple of about 10. That’s a pretty inexpensive price for a high-growth company that has nearly $300 million in annual operating profits.

AMC also has $2.3 billion in cash on the balance sheet. If the company doesn’t need to spend any of it, then it could essentially be paid for with just the equity issuance. But the best part about the deal is that it could have very positive implications for Amazon stock. This is a valid reason that why Amazon buying AMC. AMC is relatively cheap, and Amazon can use AMC’s subscriber base to bolster its streaming options. The company also already has a relationship with Disney, which could give it more access to content from the Marvel universe.

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Other Three Reasons Behind Amazon is Buying AMC

Amazon’s buying AMC is due to number of reasons. The other three reasons are elaborated below:

1.     Opportunity for Amazon

The first and most obvious reason behind Amazon buying AMC is the opportunity for Amazon. If AMC’s existing streaming subscribers become Amazon Prime subscribers, then the impact on that business could be enormous. In fact, the company already has about 1.5 million customers who are eligible for a free trial of Amazon Prime. If they convert to paid subscribers, then the addressable market for that demographic could be much larger. Of course, Amazon could use AMC to gain exposure to the streaming market, which could lead to huge upside.

It’s already a big player in the retail space. Amazon buying AMC is now a huge threat to its retail competitors. An even bigger threat is an even bigger Amazon in the streaming space. Even if Amazon decides to buy or create its own streaming service, AMC would provide the platform for it to develop content. That gives Amazon and its Prime members the chance to use the content from its rival for free.

2.     Potential for Ancillary Businesses

The second reason to like AMC stock and Amazon buying AMC is the potential for ancillary businesses. If the streaming business takes off, then AMCs current AMC Stubs loyalty program could end up being very valuable.

If a large number of AMC’s customers become Amazon Prime subscribers, then there’s a good chance that they’d be willing to make purchases within the Amazon marketplace. If a big chunk of AMC’s customer base ends up being Prime members, then it could end up being a really important avenue for growth.

3.     Popular and Running Company

Lastly, there other big companies too that are interest but Amazon buying AMC is more anxious. It’s not as if Amazon would be the only company with an interest in owning AMC. We noted that Disney could want to make a large acquisition.

Maybe another film studio is in Disney’s future plans. As we’ve noted before, it’s possible that Amazon and Apple (NASDAQ: AAPL) could get together. Whatever ends up happening with any of these different companies, AMC stock is a smart buy at this point in time.

Pros and Cons of Amazon Buying AMC

As we mentioned, AMC stock is on the expensive side. It’s trading for 45 times forward earnings and about 39 times earnings. We don’t think that those are particularly attractive multiples. For example, Disney is also trading at about the same multiple (about 34), but it has a much stronger growth profile. That’s also a concern for us about Amazon buying AMC. Because the movie industry is going through a lot of changes

Right now, AMC is actually gaining market share. But with the rise of streaming, that dynamic is likely to change in the future. For example, the IMAX theater business is declining, and AMC could fall to the bottom of the pile. If this occurs, then AMC would be extremely susceptible to an industry downturn. I also wouldn’t necessarily like the risk-reward profile for a value stock at this point in time.

But those are risks that we believe are worth taking with Amazon buying AMC stock.
Pros

  • Amazon is taking a page out of Netflix’s (NASDAQ: NFLX) book by adding more content and potential customers to its portfolio.
  • The Amazon buying AMC business is a very profitable one that could thrive as it provides the platform for a behemoth like Amazon to develop content for its Prime members.
  • The transaction is relatively inexpensive, with AMC’s stock trading at less than six times next year’s expected earnings.
  • Amazon can use AMC’s customer base to market other services.
  • The deal could lead to ancillary businesses for AMC.

Cons

  • AMC’s stock is currently down about 12% from its high in February. The stock is relatively inexpensive, and could go higher if the streaming market takes off.
  • AMC’s profits aren’t yet nearly as robust as Netflix’s.
  • Amazon will probably have a hard time competing against Netflix with its own movie business, because it will have to spend big to develop quality content.
  • Amazon would probably make a larger push into physical movies as part of its streaming service.

For these reasons, I’m in favor of Amazon buying AMC stock. Investors who want to take a chance on the stock, but don’t want to hold a company with a $13 billion market cap should consider Amazon.

Bottom Line on AMC Stock

Is Amazon buying AMC? It’s not yet announced. The acquisition makes a ton of sense, as AMC is a very cheap company that generates an impressive amount of operating profit. If the streaming market grows, then AMC will likely have the biggest benefit from it. It’s an incredibly cheap stock with significant upside potential. The deal with Amazon shows that Amazon is paying attention to the entertainment market, which gives investors some added confidence in the business.

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