Amazon Prime Video is beefing up for the streaming wars.
According to Bloomberg, Amazon could announce a deal to snap up the Metro-Goldwyn-Mayer movie studio (the one with the roaring lion as its mascot) by today. The deal could be worth nearly US$9 billion for the stable of content belonging to the film studio, which includes popular franchises such as James Bond, Robocop, and Rocky.
Media reports on this potential takeover have lifted Amazon’s stock prices, having gained in three of the past 4 sessions. Yet, looking at the longer-term trend, the stock is in need of a bigger catalyst to break out of its sideways trend and prompt its 50-day simple moving average (SMA) to have greater liftoff above its 200-day counterpart.
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Amazon’s stocks have found its presence above $3500 to be fleeting. Since posting its highest-ever closing price on September 2nd, 2020, the stock is now lower by 8.11%. In contrast, the S&P 500 has gained over 17% since, while the Nasdaq 100 has added almost 10% during that same period (2 Sept 2020 – today).
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For context, the purported $9 billion price tag is just about 12% of the $73.27 billion in cash and equivalents that Amazon had as of end-March. In return, its 15-year-old streaming platform gets to add another 4,000 films and 17,000 episodes of TV shows belonging to the 97-year-old film studio.
Having struggled to notch a mainstream hit, the acquisition could also grant Amazon access to the loyal followings of Mr. Bond and Mr. Balboa, not to mention also fans of Dr. Hannibal Lecter of Silence of the Lambs.
Note that Amazon’s subscription services accounted for 7% of its total revenue in Q1 2021, a share that has remained relatively stable over the past couple of years. This relatively small piece of the overall pie whoever is important to expand its subscriber tally and keep their eyeballs glued to Amazon’s platforms.
This deal also harbours the potential for revenue-generating spinoffs, promising a broader reach for Amazon’s Prime Video, a perk for Prime’s subscribers which already number at some 200 million.
Streaming wars heat up
If this deal happens, it would only underscore Amazon’s ambitions to be a major contender against streaming giants such as Netflix and Disney+. And Amazon hasn’t been afraid to spend so it can beef up.
In 2020 alone, Amazon spent $11 billion on content for its video streaming and music services. The company has also secured exclusive rights to NFL games on Thursday nights, stretching over the course of a decade beginning with the 2023 season, which would cost about one billion dollars per year. And don’t forget that Amazon has a multi-season series of “The Lord of the Rings” in the pipeline as well (think being able to impulsively buy LOTR merch while binge-watching this LOTR series).
Still, markets would be well aware that the streaming wars are far from over.
Recall that just last week, AT&T announced that it would spin off its media operations in order to combine it with Discovery and form a new media company which would be home to the likes of CNN, HBO, Cartoon Network, the Food Network, and the Animal Planet. That would create a formidable $130 billion player in the streaming wars.
According to Bloomberg data, there have been about $80 billion worth of media takeover deals announced year-to-date. That promises heightened competition for streaming platforms.
How might Amazon’s stock prices react?
It remains to be seen whether the official announcement of the deal will actually take place. Even then, it is unlikely to significantly reduce the 8% gap between current prices and the record high.
Note that even Amazon’s blowout Q1 results announced on 30 April didn’t lead to sustained gains; Amazon is down 6.4% on a month-to-date basis. To be fair, for the same month-to-date period, Disney is also down by more than 6%, while Netflix is faring relatively better having shed 2.06%.
For the longer-term, there apparently is still plenty of love for Amazon; the stock makes up more than 5% of the portfolios of over 70 hedge funds.
However, for the immediate term, it’ll likely require a lot more than just this MGM takeover for Amazon’s stocks to post a new record high.
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