No, Amazon shouldn’t buy AMC — or any other movie chain

On the surface, there is a logic to the deal. The report, which cited multiple anonymous sources, said the acquisition would throw a lifeline to AMC, which is heavily indebted in the wake of the Covid-19 pandemic, and give Amazon a new physical platform to market its Prime products, and cross-sell. services, and data collection.

But Amazon shouldn’t be buying AMC, the meme-fueled investors who have made its stock among the wildest on the market. It has nothing to do with the stock’s reputation: It doesn’t make much business sense, and while Amazon is undoubtedly a powerhouse, the group doesn’t have a stellar track record with physical locations.

“The bottom line is that Amazon has no interest in being in the theatrical space to make money,” Wedbush analyst Alicia Reese wrote in a note Tuesday. She said that if it were a matter of going to a physical movie theater to put a Prime production in contention for Hollywood awards, Cineworld (CINE) — which filed for bankruptcy protection last year — would be a better option.

The “go-rate” before the pandemic was $250,000 per screen. With Cineworld bankrupt, it’s possible that Amazon will be able to pick up screens for $200,000 and creditors will get an offer like that. So [Amazon founder Jeff] Reese said that Bezos’ investment advisors couldn’t say, “They bought AMC for $8 billion.” “They may want a place to show their own movies, but 1,000 screens are enough, 200 screens are probably enough.”

Moreover, Wedbush’s position is that AMC isn’t a likely takeover target anyway, given its whopping $4.6 billion in net debt and overall valuation, inflated by meme-fueled stock trading since 2021.

Still, it’s worth taking a closer look at Amazon’s track record with integrating physical locations into its sprawling tech business in the context of this deal at issue.

Just a year ago, the group announced that it would close all of its brick-and-mortar stores in the US and UK, ending a retail play that pushed books, toys and home goods to consumers. More of the same came weeks ago, when Amazon announced it was closing a portion of its Amazon Go convenience stores, which offer a no-checkout purchase.

While these sound like cost-cutting measures amid massive cost clampdowns and widespread layoffs, it might be a different story if physical locations were printing money. It’s also hard to argue that Amazon’s acquisition of Whole Foods in 2017 — for $13.7 billion, its largest acquisition ever — was a home run.

Amazon records revenue via “physical stores” in its quarterly financial statements, and while it doesn’t beat Whole Foods, the high-end grocery store is the biggest contributor in this category.

Amazon reported $4.52 billion in physical store revenue in the last three months of 2017, its first full quarter since its acquisition of Whole Foods in August. While in the final three months of 2022 there were still record sales in this category, they were still just shy of $5 billion — representing less than 10% growth in quarterly revenue in the five years since Amazon’s acquisition of Whole Foods. . This is anemic compared to the growth investors are used to seeing in the e-commerce business, not to mention Amazon Web Services.

Even going through the financials might give more credence to Amazon’s potential takeover of AMC than it deserves. But it also makes the case against the deal clear.

Write to Jack Denton at [email protected]