AMC alludes to the GameStop partnership. Should you buy their stock?

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Would have AMC Entertainment Holdings (NYSE: AMC) in partnership with GameStop (NYSE: GME) really lead to an interesting collaboration that could buy one or the other company? Or is it just a little fan service that isn’t going anywhere?

At first glance, the idea of ​​two bankrupt companies joining forces and somehow coming out stronger seems far-fetched. Both companies are in decline, and were it not for the stock market frenzy that had gripped their stocks, both would likely be much closer to bankruptcy right now.

Still, scratch a little more and an argument can be made that the two companies could benefit from the synergies derived from the collaboration.

Image source: Getty Images.

Ready, ready, wait

Investors were teased with the idea last month when AMC CEO Adam Aron told analysts the partnership with GameStop was one of the most frequently asked questions by shareholders. He wanted them to know he was “on the case,” even though he had yet to contact GameStop CEO Matt Furlong or Chairman Ryan Cohen.

But Aron has apparently taken action since. He told Fox Business Network’s Liz Claman in a recent interview that AMC had contacted the video game retailer about a partnership, talks are underway, but it was too early to go into details on what a collaboration would look like.

But what would a partnership look like?

The players applaud

Players cheer during a competition. Image source: Getty Images.

Bring esport to the big screen

The most natural solution seems to be the streaming of game tournaments in theaters. This is something that AMC has experience in through Fathom Events, a company in which it has a third party stake. Fathom broadcasts alternative entertainment on the big screen, such as performances at the Metropolitan Opera, sporting events and comedy shows. Aron sees it spreading to other areas, including video game events.

He said on the AMC earnings conference call: “But I think there’s a real opportunity here and we’re going to chase it, the same with sports, the same with gambling. really has an opportunity here to find a new source of income that AMC has never tapped before. “

With GameStop also changing direction to become an increasingly digital native and immersed in the growing esports space, the idea of ​​a theater providing a venue to view these events has merit. It is the execution of the concept that could be difficult.

Watching video games on the big screen may not be as enjoyable as watching them in more intimate environments, such as on a computer or big screen TV, where they are more often enjoyed when not in use. this is not a live and in person event.

Additionally, we still haven’t escaped the restrictions the pandemic has placed on our daily activities, including going to the theater and competitive games. Movie theaters may not be the kind of venue that offers enough capacity to make it appealing to gamers, viewers or AMC and GameStop themselves.

People wearing social distancing masks in theater

Image source: Getty Images.

GameStop goes slow

GameStop is also much more cautious about its plans than AMC, which has fully embraced its memes stock status and is openly courting the WallStreetBets crowd. Even on its earnings conference call, GameStop didn’t answer any questions.

This effort is being led by AMC, and it could be telling, as it’s in a much more precarious financial situation than GameStop, which means it might be more willing to throw weird ideas on the wall to see if they stick.

The video game retailer has paid off nearly all of its debt, has a substantial horde of cash flow, and might not be as willing to make larks as Aron. AMC, on the other hand, while it has $ 2 billion in cash on hand, also carries $ 5.6 billion in debt.

As my colleague from Motley Fool, Sean Williams, recently pointed out, AMC also has billions of dollars in lease payments and other obligations ahead that could be difficult to pay.

Game over?

I will not completely dismiss an AMC-GameStop partnership as having some value. It might even be successful if it comes to fruition.

The problem is, this isn’t likely to happen anytime soon, so it won’t help any business get out of its current predicament. This means that investors shouldn’t take this as a reason to buy either stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



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