May 27, 2021 - Economy

Amazon's MGM acquisition shows it's too big to have to explain itself

Illustration of movie reel ribbon in the shape of an "a."

Illustration: Rae Cook/Axios

Major media acquisitions — like AT&T and Time Warner — almost never work out, and are therefore very hard to justify to shareholders. Amazon doesn't have that problem: It's so big that it doesn't need to justify any of its spending.

Why it matters: Amazon is one of the most valuable companies the world has ever seen, with a market value of $1.65 trillion and revenue over the past year of some $420 billion. It makes multibillion-dollar decisions on a regular basis, many of which (the Fire phone, drone delivery) turn out to have been terrible ideas.

  • So long as the company as a whole continues to grow at a torrid pace, its shareholders have learned not to second-guess its strategy.

Driving the news: Amazon is spending $8.5 billion on MGM studios — a very rich price that would raise eyebrows and drive investor skepticism were anybody else to do it.

  • Amazon, by contrast, in its press release, doesn't see the need to justify the acquisition at all, beyond vaguely promising to "reimagine" some of the studio's intellectual property.

By the numbers: $8.5 billion is well below the $10.3 billion that Amazon made in pretax income last quarter. It's also only about 12% of the company's $71 billion in cash, which has been sitting and waiting to be put to work somehow.

The big picture: Amazon doesn't pay a dividend and doesn't even do stock buybacks. Its "Day One" philosophy involves aggressively reinvesting its cash flow into new businesses and opportunities.

So far, that's worked out spectacularly well for shareholders — even with a few inevitable missteps along the way.

The bottom line: There is potential upside here. But if this deal ends up being a bust, shareholders are unlikely to care — just so long as Amazon as a whole continues on its path to global domination.

Go deeper: How Jeff Bezos' appetite for risk is broadening

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