What to Make of Amazon's Big Content Bets
When asked during Amazon.com's (AMZN) Oct. 2017 earnings call about its aggressive video spend, CFO Brian Olsavsky noted Amazon's internal data suggests it's getting a strong payoff for that spending.
"[We] have a lot of data...we see the viewing patterns, and we also see the sales patterns, so we can tie the two together and understand which video resonates with Prime members, which video doesn't, and make mid-course corrections," Olsavsky said. He also claimed Amazon's Prime Video service is driving "better conversion of [Prime] free trials, higher membership renewal rates for existing subscribers and higher overall engagement."
Judging by recent announcements and reports, Amazon's internal stats must still point to a healthy return on its video spend. Late last week, Jeff Bezos' firm was reported to be part of an investor group also featuring The New York Yankees, Sinclair Broadcast Company and private equity firm Blackstone that's paying $3.4 billion to buy Disney's (DIS) 80% stake in the YES Network, which has regional broadcast rights for Yankees and Brooklyn Nets games.
The Yankees, which already had a 20% stake in YES, will be the network's majority owner. Nonetheless, the deal, which follows ones with the NFL to stream Thursday Night Football games, should give Amazon a chance to stream Yankees games in the NYC metro area, possibly as a perk for NYC-area Prime members. And in the process, Amazon, which has begun to get more serious about growing its ad business, would obtain some additional video ad inventory to sell.
The YES Network reports came not long after Amazon shared fresh details about an expensive Lord of the Rings series meant for Prime Video. Amazon reportedly spent $250 million just for the series' rights, and Reuters reported last year that its total spending on the series for its first two seasons could top $500 million.
Reuters also reported at the time that Amazon's total video spend had reached $5 billion. Since then, the company has indicated its video spend continues to rise.
Amazon's video spend still appears to be well below Netflix's (NFLX) , whose streaming content spend totaled $13 billion last year on a cash basis. However, the company's content spend has surpassed that of some big-name media firms, and it appears to be on its way to surpassing some more of them.
4 Chipmakers That Could Be Targets After Nvidia's Deal for MellanoxMarch 11, 2019 | 1:28 PM EST
For chip stock investors who have seen industry M&A activity slow to a crawl over the last nine months or so, Nvidia's (NVDA) $6.9 billion deal to buy Mellanox Technologies (MLNX) has to be a breath of fresh air.
The Chinese government's refusal (amid heightening trade tensions) to approve Qualcomm's (QCOM) $44 billion deal to buy NXP Semiconductors (NXPI) , which ultimately led Qualcomm to walk away from the deal last July, clearly cast a pall over the chip M&A landscape following several years of heavy activity. It also didn't help that many chip stocks were hit hard during the following months, as markets sold off and a cyclical downturn arrived.
It likely isn't a coincidence that the one large chip M&A transaction announced since Qualcomm walked away from NXP -- Japanese chipmaker Resesas Electronics' $6.7 billion deal to buy Integrated Device Technology (IDTI) -- involved a non-U.S. acquirer. That is, until Nvidia announced it's opening its checkbook to buy Mellanox.
With U.S.-China trade talks showing some signs of progress, Nvidia may have decided that the risk/reward for pursuing a large M&A transaction -- and agreeing to a termination fee in the event the deal fails to close -- is now more acceptable. And some other large U.S. chip developers might now feel the same way.
That by itself doesn't guarantee the floodgates will open for chip M&A. As Cypress Semiconductor (CY) CEO Hassane El-Khoury mentioned to me during a January talk, the fact that many chip companies are trading well below their 52-week highs could act as a near-term impediment, since targeted companies will want offers near or above their 52-week highs and would-be acquirers could be reluctant to agree to pay such a huge premium relative to a targeted firm's current trading price.
It's worth noting here that Mellanox, unlike many chip peers, closed on Friday not far from a recently-hit all-time high of $111.05. And that Nvidia's $125-per-share buyout price is easily above that high.
With all that said, following a 2%-plus gain in Monday trading in the wake of the Nvidia-Mellanox deal, the Philadelphia Semiconductor Index has risen close to 15% since I talked with El-Khoury. While many chip developers are still sharply below their 52-week highs, a number of firms are now trading less than 20% below them.
Which of these firms could get targeted? Here are a few possibilities:
- ON Semiconductor (ON) . ON, an analog and mixed-signal chipmaker, still trades at moderate multiples and just forecast its EPS would rise about 50% from 2018 to 2022. The company's healthy exposure to a growing automotive chip market could appeal to an acquirer.
- Qorvo (QRVO) . A major RF chip supplier, Qorvo's multiples are also pretty subdued. 5G and IoT hardware adoption should help it grow.
- Inphi (IPHI) . Inphi is a networking and telecom chipmaker. Demand for higher connectivity speeds within data centers and telecom networks remains a tailwind.
- Cree Inc (CREE) . Though better known for its LED chip and lighting business, Cree (via its Wolfspeed Electronics unit) has become a top supplier of silicon carbide (SiC) chips, which thanks to their ability to withstand very high temperatures and voltages are seeing growing adoption in cars and other products. However, the stock now trades at relatively high multiples.