Rumors surfaced late last week that Amazon (NASDAQ:AMZN) could be interested in acquiring beleaguered theatre chain AMC Entertainment (NYSE:AMC). The story was based on months-old speculation that the two companies had held discussions about the possibility of a takeover. Investors immediately set up camp on either side of the issue about the potential pros and cons for both parties.
In this clip from Motley Fool Live, recorded on Feb. 18, “The Wrap” host Jason Hall and Fool.com contributors Danny Vena and Brian Withers discuss whether the alleged hookup makes any sense.
Jason Hall: Our colleague Rick Munarriz wrote an article today that was trending on Fool.com: “Amazon Buying AMC Isn’t as Crazy as You Think.” Here’s my question, I’ll let you guys to prognosticate on. Brian, I’m going to ask you to go first here. Will Amazon ever be in the movie theatre business?
Brian Withers: Well, I never thought they were going to be in the grocery business.
Is the brick-and-mortar cinema on their radar? I think only if they can do it in a different [way] and it benefits them somehow technologically and they can provide a better customer experience. They haven’t necessarily changed the grocery experience yet, but you can certainly see they have these contactless stores where you can go through, and you put your phone in, and they track you throughout the store, and then you just walk out with your groceries, and it charges your phone, and it knows what you took.
I don’t think they could’ve done that without buying a grocery chain, and really experiencing what it is to deliver groceries, and be in the grocery supply chain. They’re also getting into grocery delivery and I don’t think they would be as good grocery deliverer as they would if they didn’t own Whole Foods.
Could they be a better entertainment delivery? If they bought some brick-and-mortar stuff, if they buy it on the cheap, it’s entirely possible. I haven’t really thought about ways they can do this stuff, but I wouldn’t put it past them. Let me just put it that way.
Jason Hall: Danny, will want to weigh in here?
Danny Vena: Having owned the AMC stock for a long time, which I sold back last November, and being a long time investor in Amazon, my answer is, I certainly hope not. [laughter]
If you think about the way Amazon thinks, you know that Amazon is always following the big trends, generally speaking, e-commerce and cloud computing. They have decided to get into the physical grocery business as well with the purchase of Whole Foods. But that was primarily to expand the network of places where they could deliver from.
You noticed, one of the first things they did was a stuck up a bunch of lockers in the Whole Foods so people can come and pick up their Amazon packages. I suspect if Amazon ended up buying AMC Theatres, the first new thing that you would see would be some of the concessions shoved to the side and a big wall of Amazon lockers for people to pick up their e-commerce orders.
But no, I don’t think Amazon is interested in getting into business with AMC. I don’t think that they want to buy into a business that is in — and has been in — secular decline for so long. It just doesn’t make any sense to me.
Jason Hall: I think if you take the often batted around reasons why it makes sense as well, Prime video. If they want to continue to leverage that, they want to be able to have Oscar-worthy stuff owning theatres makes it. I think that’s nonsense. I don’t think that comes into play at all.
Here’s something that I’ve been thinking more and more about Amazon, groceries are a low-margin, high-turn business. You make your money on volume. Retail in general, especially general merchandise retail, Amazon.com, low-margin, high-turn business.
They’ve found out how to make their margins on things like the Fulfilled by Amazon. They make really good margins on that because it’s somebody else’s stuff and they’re basically just leasing out space in their warehouses and providing the delivery service. Then you think about Amazon Web Services, the best law of unintended consequences result you could ever get from a financial perspective, it’s massively profitable. But I think, it’s not a stretch to say that it was an accidental success for Amazon as a commercial enterprise.
With that said, the one thing we haven’t seen is the company really get into anything that’s disrupting experiential retail. The company hasn’t made a play there. I’m certainly not ready to discount for all of the traditional reasons why it doesn’t make sense for Amazon to not do this.
Amazon is like the perfect, the sum of its parts is greater. The sum of the whole is greater than its parts, is I think the case for Amazon. If they were to make that move, I think that there will be a lot of reasons why that it would add up to be a good move. I’m not going to sleep on it. I’m not going to sleep on it at all. We’ll see what happens.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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