Amazon Inc. (NASDAQ: AMZN) confirmed an agreement to acquire MGM Studios for $8.45 billion (£5.97 billion) earlier this week – a move that, according to Evercore ISI’s Mark Mahaney, will significantly add value for the tech giant’s Prime users.
Mark Mahaney’s comments on CNBC’s ‘Squawk Box’
On CNBC’s “Squawk Box”, Mahaney said on Friday:
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“Amazon has over 200 million Prime customers worldwide, which may be the most valuable customers in retail worldwide. Based on our survey, these customers spend at least twice as much as non-Prime customers. With the MGM acquisition, what Amazon is trying to do is give its customers more reasons to sign up with Prime and more reasons to stick with Prime. So, this deal will help Amazon acquire more customers as well as retain the existing ones.”
The Evercore ISI senior managing director acknowledged that it is difficult to value media libraries but highlighted that Amazon spending $8.45 billion on MGM acquisition is not ‘outrageous’. He quoted Netflix that spends $17 billion a year to create content. Similar is the with other giants of global online content streaming platforms like Disney and Discovery.
Amazon wants a crowd grabber like ‘Game of Thrones’
According to Mahaney, online content streaming is a highly competitive space that requires investment north of $10 billion a year to become a serious player. Commenting further on reasons why it made strategic sense for Amazon to bring MGM Studios under its umbrella, Mahaney said:
“Amazon has had some wonderful hits like ‘Manchester by the Sea’ that won Oscars, but it wasn’t necessarily a crowd grabber like, say, ‘Game of Throne’. So, what they are hoping for is some sort of blockbuster production, like the Rocky Franchise or the Bond Franchise. There’s some content in there that just starts off being more popular than the vast majority of the content that Amazon has tried to develop to date. They are trying to get more and more content – they’ve tried to build it on their own but had mediocre success only.”
Amazon shares are currently trading at $3,242 versus a year-to-date high of $3,471 in the last week of April. The American multinational had started the year at a per-share price of $3,187 after closing 2020 with a more than 70% gain. At the time of writing, Amazon has a market cap of $1.63 trillion and a price to earnings ratio of 61.47.
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