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 it, you can get life insurance in as little as five minutes. Look at this: I now even have a paid promotion button? You see that? Look at that! I press a button and it comes up just for you.

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