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Amazon's bet on The Lord of the Rings and NFL 'furthers a bigger strategy': Analyst

Amazon's big spending on NFL Thursday Night Football and The Lord of the Rings content is only likely to widen its lead versus others in e-commerce and retail, one analyst contended.

In a new note, Morgan Stanley Analyst Brian Nowak estimated Amazon will spend a shocking $1 billion to deliver NFL games and "The Lord of the Rings: The Rings of Power" TV series to subscribers later this year.

"The strategic importance and timing of these content spend step ups furthers a bigger strategy," Nowak said, adding: "1) Prime members value the video content (even more than same day delivery or discounts), 2) Amazon is pressing its scale advantage while competitors are slowing spend, and 3) Maybe investors should think of the NFL and content investments as retention spend, and research and development."

The analyst reiterated a buy-equivalent overweight rating and $175 price target on Amazon stock. Shares were relatively flat at $142 during Monday's trading session.

Amazon has been relatively mum about its Lord of the Rings TV series. Originally announced in 2017, the first season was speculated to have cost Amazon about $450 million to make.

As for NFL Thursday Night Football, the games starting this fall will be free for fans in local markets. But everyone else will have to have a Prime subscription to watch.

Wall Street expects both pieces of content to be catalysts for Amazon's business.

"Notably, Prime Video will launch The Lord of the Rings: The Rings of Power on September 2 & Thursday Night Football will start on September 15," JP Morgan analyst Rajut Gupta wrote in a recent note to clients. "Suffice to say, Middle-earth, the NFL, and high profile talent do not come cheap, but we also can't remember a more anticipated period of content for Prime Video, which should pay dividends in terms of Prime members and retail sales."

"The Lord of the Rings: The Rings of Power." (Amazon Prime)
"The Lord of the Rings: The Rings of Power." (Amazon Prime)

The hotly anticipated content from Amazon comes as the company has fallen back in favor with investors following a better-than-expected second quarter. Amazon not only showed solid sales trends in an economic slowdown but reined in spending to bolster operating profits.

Since the company reported earnings in late July, it has also shelled out $1.7 billion to acquire robot vacuum maker iRobot.

And on Monday, noted value investor Seth Klarman of Baupost Group disclosed a stake in Amazon.

"We see a combo of attractive valuation and improving profitability helping deliver second half outperformance," Jefferies analyst Brent Thill said. "In addition, our sum-of-the-parts analysis implies minimal value is being ascribed to core-retail [business]."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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