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Stock Analyst Update

Amazon Expands Video Library With MGM Acquisition

Our fair value estimate remains at $4,200 per share.

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On May 26, wide-moat Amazon (AMZN) formally announced the acquisition of privately held MGM Studios for $8.45 billion; the deal had been rumored for several days. No timing has been provided, but we do not expect regulatory delays. While the deal is immaterial relative to Amazon’s $1.6 trillion market cap and we are not adjusting our $4,200 fair value estimate, we see this move as strategically important as the company adds more content to its Amazon Prime Video library. MGM’s content spans movies, scripted and unscripted television, video games, and podcasts. Notably, MGM owns a variety of franchises including James Bond, Rocky, Pink Panther, The Handmaid's Tale, and Real Housewives and boasts a catalog of more than 4,000 movies and 17,000 TV episodes. We think Amazon must continue to expand its content library to remain one of the relevant streaming players. We can envision the company justifying an increase in Prime membership prices next year based on the MGM acquisition.

We believe Amazon remains well positioned to prosper from the shift toward e-commerce during the COVID-19 pandemic in the near term, with particular strength in groceries and staples, but also from the secular shift toward e-commerce in the long term, and we see content as a differentiator for Prime members. We expect some content to be made available for free to Prime members, as Amazon has continued to expand benefits for this important group of consumers who shop more frequently on Amazon.com, purchase from more retail categories, and spend more overall with Amazon. Amazon’s subscription services generated $25.2 billion in revenue in 2020, representing 7% of total revenue and up 31% over 2019. We think most of this is Prime memberships, but we also see other paid subscriptions, including Kindle Unlimited, Prime Video, and Amazon Music Unlimited, as growing faster within the mix.

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Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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