E-commerce giant Amazon (AMZN) could be looking at acquiring film studio Metro-Goldwyn-Mayer (MGM) for $9 billion, according to a Variety report citing unknown sources. The report confirmed that MGM had already said in December that it was searching for a buyer.
According to the report, MGM has 4,000 film titles that include the James Bond, Pink Panther, RoboCop, and Hobbit franchises while MGM’s television library includes 17,000 episodes of programming including Stargate Universe, Vikings, and Fargo.
Amazon’s Prime Video streaming service has proved to be extremely popular, and the company is also looking at streaming live sports content. Amazon has signed a ten-year deal with the National Football League (NFL) and will stream Thursday Night Football games starting from 2023.
Amazon’s Founder and CEO, Jeff Bezos stated at the company’s Q1 earnings call, “As Prime Video turns 10, over 175 million Prime members have streamed shows and movies in the past year, and streaming hours are up more than 70% year over year. Amazon Studios received a record 12 Academy Award nominations and two wins.” (See Amazon stock analysis on TipRanks)
Following the Variety news report, Morgan Stanley analyst Brian Nowak reiterated a Buy and a price target of $4,500 on the stock. This implies upside potential of approximately 39% over the next 12 months.
Nowak commented, “AMZN spent ~$11bn in content investment in 2020 and we currently model the company to spend ~$13bn in ’21. The extent to which AMZN might acquire MGM studio could arm it to compete more directly with larger studios like Warner Bros, Disney, Paramount, 20th Century Fox, Netflix, among others…but that would require capital investment. Said another way, AMZN is likely to have to invest more to produce new content from the MGM library of franchises…not to mention any other content its studios (Amazon and MGM) would attempt to produce or acquire. We have written about AMZN’s ~$150bn (and growing) ’20 gross profit base and its ability to absorb incremental investment, but we do want to flag to investors that incremental investment in content does bring risk given the hit-driven nature of the industry.”
Overall, consensus among analysts is that AMZN is a Strong Buy based on 31 Buys. The average analyst price target of $4,298.55 implies upside potential of about 33% from current levels.
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