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Are Theater Stocks in Trouble As Amazon Targets Landmark?

Zacks Equity Research logoZacks Equity Research 8/23/2018 Shilpa Mete

Amazon AMZN doesn’t seem content to rest on its laurels as it eyes continuous expansion into uncharted territories. The e-commerce giant now intends to bolster presence in the world of cinema, as its insatiable appetite for growth looks to disrupt the theater market.

Reportedly, the company is looking to acquire Landmark Theatres, one of the largest theater chains in the United States. Notably, it is owned by billionaires Mark Cuban and Todd Wagner.

Notably, streaming giant Netflix NFLX had also shown interest in Landmark. However, it is now rumored that the company has dropped the plan due to high acquisition price.

Why Landmark is Important for Amazon?

Amazon is likely to benefit significantly from the huge portfolio of theater assets owned by Landmark Theatres. It has more than 50 theaters situated in 27 locations including New York, Philadelphia, Chicago, Los Angeles and San Francisco.

Further, if the deal materializes, the company would be able to showcase the award winning films produced and distributed by Amazon Studios in the theater houses. Consequently, this will aid revenue generation.

Given the success rate of Amazon in every possible sectors that it has forayed into, the latest endeavor will help it fast penetrate the movie theater market, which as per a report from Technavio, is expected to see a CAGR of 7% between 2017 and 2021.

Moreover, Amazon’s entry in the theater world is likely to aid it in moving toward the Oscar and other prestigious award winning scenarios.

We believe Amazon’s strengthening relationships with the production houses and entertainment companies bode well for its growing focus toward movies and theater world.

Recently, Amazon partnered with Blossom Films, a production company owned by the Oscar-winning actress Nicole Kidman. Further, its relationship with Sony Pictures is a major positive., Inc. Revenue (TTM)

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Should the Theater Stocks Worry?

Amazon’s disruptive nature usually spells doom for industry participants. Till date, whichever sector the company has entered be it retail, cloud, home automation, streaming services to name a few, Amazon has always been successful in reaping benefits.

Consequently, it won’t be a far cry to say that Amazon’s aggressive stances and strategic partnerships in the theater space are likely to disrupt the sector very soon.

Let’s have a look at few stocks which might face be vulnerable to the burgeoning presence of Amazon if and when it enters the space.

AMC Entertainment Holdings, Inc. AMC operates as a theatrical exhibition company primarily in the United States and internationally. Currently, it owns 1,005 theaters and 10,988 screens. The company carries a Zacks Rank #3 (Hold). Its long-term EPS growth is pegged at 10% currently.

IMAX Corporation IMAX is a global entertainment technology company that specializes in motion picture technologies and presentations. Currently, the company owns 1,410 theaters in its system. It carries a Zacks Rank #3 and has its long-term EPS growth projected at 19%.

Cinemark Holdings Inc CNK holds a strong position in the motion picture exhibition industry and operates 539 theaters in the United States, Brazil, Argentina, Chile, Colombia and many other countries. Currently, it owns 5998 screens in total. The company’s long-term EPS growth is pegged at 15%. However, it carries a Zacks Rank #5 (Strong Sell).

Amazon Well-Poised to Outperform

We believe Amazon’s growth prospects are much higher compare with that of these companies as it flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Also, the company’s long-term earnings growth is currently projected at 26.5%.

Moreover, if we consider the price performance of these theater companies and Amazon in comparison with the overall S&P 500 stocks on a year-to-date basis, then Amazon comes out as a clear winner.

Notably, shares of Amazon have returned 62.9%, outperforming the S&P 500 index’s rally of 7.3%. Meanwhile, AMC Entertainment’s shares have returned 25.9% exceeding the S&P 500’s overall gain.  

Further, shares of IMAX and Cinemark have returned 3.1% and 6.9%, respectively, underperforming the rally of S&P 500.

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