Will the MGM acquisition let Amazon’s share price roar?

Amazon’s [AMZN] share price fell 1.6% between the start of 2021 and 1 June, when it closed at $3,218.65. Despite a downturn in March that saw its share price sink to $2,951.95, the stock recovered swiftly.

Amazon’s share price saw rapid gains through April, peaking at $3,554.00 on 30 April. However, its share price fell 11.3% over the following fortnight to close at $3,151.94 on 12 May, as investors began losing faith in tech stocks across global markets. Over the past 12 months (to 1 June), Amazon’s share price has gained 30.1%.

  

Now, the e-commerce giant has bolstered its streaming offering with the recent acquisition of famed film studio MGM Holdings. Will the news make Amazon’s share price one to watch?

 

Amazon in the Bond market

Last week, reports emerged that Amazon had agreed to purchase Hollywood studio MGM in a deal worth $8.45bn including debt, with an equity value of $6.5bn. The deal will be the second-largest acquisition in Amazon’s history, after the $13.7bn it paid for Whole Foods four years ago.

As part of the deal, Amazon will acquire MGM’s back catalogue of intellectual property totalling over 4,000 films, including the James Bond and Rocky franchises. The move will strengthen Amazon’s Prime Video platform as it continues to compete with fellow streaming giants like Netflix [NTFLX] and Disney [DIS].

  

The streaming wars have intensified of late, with Disney announcing in March that its Disney+ streaming platform had reached over 100 million subscribers less than two years after its launch. Netflix, in comparison, took 10 years to reach that milestone. Disney+ was forecast in March to overtake Prime Video’s subscriber numbers by 2024.

Intellectual property is the ammunition with which the streaming wars are waged. Increasing competition means that studios’ proprietary services, such as WarnerMedia’s HBO Max, are increasingly protective over legacy content such as the Friends series. Amazon has so far trailed on this metric. In the US in 2020, 12.5% of movies and 21% of TV was exclusive to the platform, compared to more Netflix’s 48.6% and 72.3% respectively, according to Statista.

By bringing MGM’s extensive library under Amazon’s wing, the deal will immediately boost the proprietary content Prime Video is able to offer as well as providing scope for some of the studio’s major titles to be developed.

Jeff Bezos, CEO of Amazon, said on a briefing call with shareholders on 26 May that “MGM has a vast, deep catalogue of much-beloved intellectual property, and with the talented people at MGM and the talented people at Amazon Studios, we can reimagine and develop that IP for the 21st century.”

“MGM has a vast, deep catalogue of much-beloved intellectual property, and with the talented people at MGM and the talented people at Amazon Studios, we can reimagine and develop that IP for the 21st century” - Jeff Bezos, CEO of Amazon

 

However, in the case of James Bond, Amazon may be blocked from excessive tinkering, particularly in the TV series direction, as the franchise is part-owned by Eon Productions. Its owners, Barbara Broccoli and Michael G Wilson, exercise close control over the character and clarified Bond’s ongoing primary role as a film character following news of the acquisition.

 

Media exposure

The announcement saw Amazon’s share price increase 0.18% on 26 May, but this was followed by two consecutive days of price falls on 27 and 28 May. From 25 May to 28 May close, Amazon’s share price fell 1.10%.

The media streaming industry seems to have performed better over the period, with both the iShares Evolved US Media and Entertainment ETF [IEME] and the John Hancock Multifactor Media and Communications ETF [JHCS] showing gains on 26 and 27 May, before tailing off on 28 May.

Both funds count Netflix and Disney among their top 10 holdings, with Disney topping the iShares Evolved US Media and Entertainment ETF’s holdings list at 5.09% of the fund, as of 28 May. The fund 1.2% between 25 and 1 June, while the John Hancock Multifactor Media and Communications ETF has gained 1%. The funds are up 11.6% and 9.6% so far this year, respectively.

  

However, because its streaming service is currently a side-line to its primary business activities, Amazon isn’t featured on these media ETFs. Instead, the stock can be found in the holdings of the ProShares Online Retail ETF [ONLN] or the Amplify Online Retail ETF [IBUY]. As of 1 June, Amazon is the top holding in the former, with a 23.46% weighting, while it lies 35th in the latter’s holdings, weighted at 1.69%.

Given its massive position in the stock, the ProShares Online Retail ETF’s performance mirrors Amazon’s closely: it is down 1%  in the year to date but up 60.6% in the past 12 months. With its much lower Amazon weighting, the Amplify Online Retail ETF has gained 5.4% year to date and 85.9% in the past 12 months.