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Morgan Stanley note on Amazon's streaming ambitions points to reasons we own the stock

Published Mon, Aug 15 20222:01 PM EDT

Zev Fima @zevfima

Analysts at Morgan Stanley provided a brief update on Amazon 's (AMZN) streaming initiative over the weekend, highlighting the company's NFL Thursday Night Football contract . As a reminder, Amazon previously signed an 11-year deal to stream 15 Thursday night games and one pre-season game each season. The Morgan Stanley note also noted the upcoming Prime series "The Lord of the Rings: The Rings of Power," which is set to be released on Sept. 2. The analysts expect the NFL deal to result in incremental costs of $820 million in 2022 and $860 million in 2023, with that number increasing over time and averaging out to about $1 billion per year over the 11 year timeframe. As for "The Lord of the Rings," or LoTR for short, the analysts estimate that spending here will amount to roughly $140 million in 2022 and $230 million in 2023 — largely in the second half due to the timing of the season premiers. So, combined the analysts see total content cost at Amazon rising to about $16 billion in 2022 and $20 billion in 2023, exceeding Netflix 's (NFLX) roughly $14 billion 2022 budget and $15 billion 2023 budget. The question for Amazon investors is: Do these investment makes sense from a return on investment (ROI) perspective? Regarding the NFL deal, the analysts expect the direct revenue benefit to be "likely small" with the bulk of the returns coming in the form of advertising sales. In an attempt to quantify the advertising revenue, the analysts noted that the firm