Why Amazon Stock Was Moving Higher Today
What happened
Shares of Amazon (NASDAQ: AMZN) were gaining today, seemingly on rumors that the company was considering a surprising acquisition.
According to a report in the entertainment website The Intersect, Amazon founder Jeff Bezos has dispatched advisors to explore an acquisition of AMC Entertainment Holdings, the world's largest movie theater chain.
As of 11:28 a.m. ET on Wednesday, Amazon stock was up 2.5%, likely benefiting from broad gains in the market as well, as the Nasdaq was up 1.2% at the same time.
So what
According to the report, Amazon sees the company's 600 movie theaters in North America, Europe, and the Middle East as "marketing weigh stations," where the company can pitch its Amazon Prime membership program, tech gadgets, grocery delivery, and other products.
The report said that the movie theaters also have potential as local distribution hubs and could collect data on the viewing preferences of theatergoers.
AMC is currently trading at a market cap of $2.5 billion, but it has more than $5 billion in debt on its balance sheet, and the business has been floundering since the pandemic struck.
Now what
Acquiring a massive brick-and-mortar business might seem out of character for Amazon, but the company did spend nearly $14 billion to take over Whole Foods in 2017, and it has shown an interest in entertainment properties since then, paying $8.5 billion last year for MGM Studios, the producer of franchises like the James Bond films, and spending aggressively on Amazon Prime Video.
Bezos has long seen video entertainment as a priority for the company, believing that Prime Video encourages customers to spend more on Amazon. And for years he has called on the company to come up with a blockbuster on par with HBO's Game of Thrones.
While an AMC takeover seems unlikely, Amazon has never been afraid to experiment. The report said that Bezos was also considering waiting for the stock price to fall further or buying the theater's assets out of bankruptcy.
With Amazon focused on cost-cutting, a move into a declining industry like movie theaters seems bizarre, but there could be some strategic value here. We'll likely learn more in the coming weeks if a deal is shaping up.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.
