Manhattan, New York. July 10, 2020. AMC movie theatre on 42nd street in Midtown.
AMC (AMC) stock closed Wednesday's trading session down nearly 3% after surging on Tuesday following a report from The Intersect which claimed tech giant Amazon (AMZN) is interested in acquiring the embattled theater chain.
The report, which cited "multiple senior sources familiar with the discussions," said Amazon founder Jeff Bezos is exploring plans to purchase AMC in order to use its 600+ theaters to promote Amazon Prime movies and cross-sell services like grocery delivery.
However, not everyone is convinced of a deal like this coming to pass, with Wedbush analysts Alicia Reese and Michael Pachter writing in a new note: "Amazon would be better off buying a piece of Cineworld," which filed for bankruptcy in September 2022.
"Amazon could buy 1,000 screens for $200,000 a screen, or $200 million. Why would Amazon instead choose to buy 10,000 screens for $8 billion?" the analysts wrote, referencing AMC's heavy debt load of $4.6 billion, in addition to the stock's inflated valuation.
"The bottom line is that Amazon has no interest in being in the theatrical exhibition space to make money," the note added.
"It just makes no sense whatsoever that someone would buy AMC and take over their debt instead of buying Cineworld out of bankruptcy," Pachter told Yahoo Finance Live on Wednesday.
"There's no point in Amazon buying a company that has debt," he continued. "This is an idiotic concept. I would downgrade Amazon if they did something as stupid as buying AMC. That [would] show [Amazon CEO] Andy Jassy has no idea what he's doing."
Ultimately, Pachter said he doesn't see Amazon acquiring Cineworld, either, explaining the move would not make strategic sense for the company.
"The biggest acquisition [Amazon] ever made was Whole Foods. That was a $4 to $5 billion revenue company and Amazon strategically needed to get into home grocery delivery. This doesn't make sense," he said.
Tuesday's report also comes at a time when tech giants have been heavily investing in entertainment, despite cutting costs in other areas.
Last week, Bloomberg reported Apple plans to spend $1 billion a year to produce movies that will be released in theaters. Similarly, Amazon formulated plans to invest $1 billion to produce 12-15 movies a year exclusively for theaters, Bloomberg reported in November. Amazon closed its $8.5 billion deal to acquire MGM early last year.
Theaters, still reeling from the pandemic, have yet to see ticket sales bounce back to pre-pandemic levels — despite blockbuster showings from films like "Avatar: The Way of Water," "Creed III," and "John Wick: Chapter 3."
"Across the top 5 studios, 2022 global box office receipts were down 43% vs. the pre-pandemic baseline. While we are expecting 8% growth in 2023, this would still place the industry down 39% vs. pre-pandemic levels," Evercore ISI analyst Vijay Jayant wrote in a note published on Sunday.
But could AMC eventually sell to someone? Pachter isn't so sure.
"AMC's a seller at some price, but who is the buyer?" he questioned.
"The fact is it's a declining business, so there's not really that much opportunity for a financial buyer."
(Source: Yahoo Finance), all rights reserved by original source.