Amazon Buying AMC

AMC is potentially looking at an

acquisition from Amazon now this was

unexpected but does it potentially make

sense me thinks there could actually be

a good argument here for Amazon now I

want to be clear I'm personally not the

biggest fan of Amazon stock I think it's

selling for a nice discount right now

but there's a potential that there's a

reason it's selling for this sort of

discount I'm not the biggest fan of its

actual merchandise business I think they

lose money hand over fist in

merchandising I think basically Amazon

and you can look at the earnings calls

for this though they purposefully lumped

together some of their costs of goods

sold to make it very difficult for you

to know how terrible some of their

margins actually are but generally I

think of anything they sell on Amazon

and Amazon Prime as a loss leader the

place they make money is AWS Amazon web

services however those margins have been

compressing by about four uh 400 basis

points about four percentage points uh

over the last quarter and we're starting

to see a Slowdown in Revenue growth for

Amazon AWS so AWS well it's a fantastic

segment it's the profitable one and it's

really what you want to be paying for at

Amazon content creation is risky movie

creation is a risky business uh and uh

the merchandise business is is not that

uh particularly profitable it's almost

more of a lost leader in fact Amazon is

turning so tight that they're

considering getting rid of the entire

Amazon Alexa program by just killing it

off they don't find it to be profitable

they don't find it to actually be adding

to sales and quite frankly while it was

novel to go yo Amazon order some new

batteries I always end up going on my

phone anyway to make sure it's actually

doing it correctly so the whole like

order by voice thing never really went

anywhere but how could this relate to

Amazon and what could Amazon potentially

do with movie theaters and why does

Amazon even want these movie theaters so

I was doing some thinking about this and

I want to be clear

Bloomberg intelligence and Bloomberg

reported uh this potential acquisition

that led Amazon uh or actually let AMC

stock to jump as much as 18 yesterday

but I'm going to go into my opinion now

and give you sort of my thought as to

why maybe this could make sense so first

of all there are 584 movie theaters that

AMC has now the actual cost to build out

a movie theater keep in mind this does

not build the actual building it's build

it out the reason I say that is because

most of AMC theaters are actually leased

if you look at the asset statement for

AMC you've got somewhere around a

billion and a half for actual property

and somewhere around five billion

dollars in actual leases which means

that five billion dollars in actual

lease liabilities probably represents

control of somewhere maybe around 10 to

20 billion dollars of actual buildings

so you could see as a percentage of

property AMC has very very little actual

property most of it is actually Lee

space because you're leasing really the

space within the walls uh I mean kind of

like a commercial condo so to speak but

somebody else owns the building right so

most of uh AMC's liabilities are lease

obligations in addition to about five

billion dollars of actual debts that

they have they've got about 11 billion

dollars of liabilities uh and about nine

of assets so they're a little upside

down right now they've got negative

shareholder Equity we know that uh it's

about negative shareholder Equity of

around two billion dollars so the point

is they have 584 theaters so 584

theaters if you wanted to build a movie

theater right now what would it cost you

well according to RS means in 2019 the

cost was about two million dollars to

build out a theater I actually thought

that sounded a little low so let's call

it three million dollars let's add 50 to

that cost uh it in my opinion that also

still seems a little bit low with AMC

though if you paid three billion dollars

for AMC which would be a premium of of

what the stock is trading for right now

it'd be maybe about a 30 upside you'd be

paying about five million dollars per

movie theater now potentially what's

interesting here is Amazon's purposes

for this because does it make sense for

Amazon to potentially overpay for the

movie theaters on these tenant

Improvement build outs and given the

fact that right now regardless of what

the cost is to actually build out a

movie theater if Amazon was willing to

build a new movie theater in vacant

commercial space the landlord probably

build out the movie theater for you for

free so the cost of the movie theater

construction doesn't even matter because

landlords will pretty much do anything

right now to get new tenants and if you

sign a seven to ten year lease and it's

Amazon a big anchor coming in to sign a

big seven to ten year lease with you

they'll probably give you a free movie

theater

so the cost to build the movie theaters

doesn't actually really matter so it

doesn't necessarily make sense to buy uh

AMC movie theaters for the actual

theaters themselves because a you could

probably get free movie theaters and and

B these are old movie theaters right so

they're actually a depreciated asset

it's not like they're brand new theaters

but why would it potentially make sense

well in my opinion the biggest spoon to

Amazon would be the location

think about it

584 commercial massive spaces between

probably 10 to 24 Theater spaces that

you wouldn't even need to use all of the

theaters for actual theaters you could

use them for customer distribution

centers

AWS think about it you take let's say

you have a a 10 unit movie theater in a

mall turn two of the theaters into

distribution and so people can pick up

their Amazon Prime orders with a bunch

of lockers turn three of them into an

AWS Outpost now you might think well

wait a minute like why like you'd have

much better scale doing that in the

middle of Nevada potentially but

depending on how server infrastructure

is designed it might make sense to have

your backup copies out in the middle of

Nevada but your your needed copies for

some of your customers of server data

local to the customer and potentially

you reduce latency and actually increase

the effectiveness of your product now

I'm not a server expert so I'll take

Insight from other folks who know a lot

more than I do I'm just thinking outside

the box like how could this potentially

make sense for Amazon but in addition to

being a locker pickup for Amazon a

merchandise pickup for Amazon a customer

distribution center and also maybe an

AWS location what it also does is it

puts Amazon right in malls and

restaurants where it's easy for people

to want to order stuff on Prime have it

delivered there very quickly and

effectively and easily but also I would

guess that any Prime member might in the

future be able to just walk in and have

a whole host of the Amazon Library

showing whatever it is they're showing

not just the top five to ten movies that

Amazon might produce every single year

but everything think about it you could

play you could have screenings of movies

that were popular last year or you could

have screenings of of uh seasons of

shows think about that we actually don't

do that right now and now you could

potentially in a recurring way get

people back to movie theaters because

what you do is you say hey uh you know I

can't even think of an Amazon show right

now but it may be handmaid's tale I

don't know if that's on Amazon or

something maybe that's on Netflix

whatever who cares so let's say you want

to watch handmaid's tales and you're

like I want to see that in the theory

that in the theaters that'd be awesome

well now you're captive in the theater

10 times in a row and you may as well

pick up your Amazon order while you're

at it and you're bringing business to

that local Plaza and potentially the

restaurants and the malls that they're

attached to so really what AMC has is

the Prime real estate location Amazon

can build movie theaters wherever they

want but AMC has the locations and

solely because they have the rights to

those locations I actually think there

could be value in a potential Amazon AMC

play now you know I'm not the biggest

fan of the AMC fundamentals so generally

I'm pretty bearish but this actually

could make some sense Amazon's got like

70 billies sitting around 70 to 80

billion dollars of cash sitting around

paying three or four bill for AMC which

which could have an upside of somewhere

between 30 to 50 percent uh it's

actually not that unreasonable so we'll

see it's an interesting idea

it's uh there are some real potential

ideas for how it could make how it could

really integrate Amazon into people's

lives a little bit more and really think

about it if you have a Prime Membership

you could come to the movie theater for

free now it'll be interesting how they

sort of pre-scheduled that because

generally if you have it free you might

fill up the movie theaters but then

again if anybody's been to an AMC

recently you know most of the time the

theaters are somewhere around 80 empty

unless there's like some hot hit new

movie like Top Gun or whatever and then

maybe it's like 60 full but I would say

the average occupancy of most of the

theaters right now is probably somewhere

around 20 to 30 percent Amazon giving

away seats for free basically to their

Prime subscribers

can actually keep the theaters in

business and then guess where theaters

make oh I didn't even think about this

oh see listen to this remember where

movie theaters make money you think it's

at the ticket booth of course not

generally all of the ticket booth

Revenue goes to the movie studios anyway

where do movie theaters make money folks

concessions that overpriced hot dog that

you just gotta have that popcorn you

just gotta have

well now if you fill up the movie

theaters

for free basically people like yo you

just use your Prime Membership swipe

your phone and and go into the movie

theaters it's actually a brilliant idea

now you could sell overpriced

concessions to people and people can

pick up their Amazon orders all in one

it's a good idea uh but then again

you know are people gonna care will

people actually come because in theory

it's not really a free show you are

paying for the Prime Membership right

you could watch it at home

so that's probably your risk factor here

it's like are you actually going to get

people to watch you know shows and

movies uh for free at the movie theaters

that's probably the bigger stretch now

they got the real estate but that's all

I could see because outside the real

estate Amazon's probably better off just

making their own movie theaters because

the landlords will just build the damn

theaters for them

but AFC might have the location that's

it now keep in mind from a fundamental

point of view I'm still slightly bearish

on AMC itself especially with the drama

around ape shares but then again you

could learn all my opinions on that if

you want just type into YouTube meet

Kevin AMC and you'll see my historical

videos on that so you can check that out

there however obviously an Amazon

acquisition would be very bullish for I

would believe for existing shareholders

as they would likely have to be bought

out for a premium generally you don't

see Acquisitions occur where the shares

are being sold at a discount because

shareholders would not vote to approve

that so you would expect some kind of

Premium if a buyout like this were to

happen however uh rumors like this have

come up before and uh they haven't come

to fruition I also wouldn't be surprised

to see mergers and Acquisitions kind of

stay on the lower side of things uh for

the time being because of the

uncertainty regarding recessionary

Outlook so so I think you've got

probably a lot of headwinds against you

here to suggest that this is definitely

coming but then again sometimes the best

time to actually grow a business is

during a recession so an argument can be

made either direction would I really

want to bet on this probably not but

look if it happened be a phenomenal

thing it'd be very interesting to see

what Amazon does with AMC Theaters

okay so that's my take on AMC and if

you're like spoiled bong water who says

is Kevin really talking about AMC

the answer is yes and if you don't like

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