Bear of the Day: AMC Entertainment Holdings, Inc. (AMC)
The coronavirus has showcased the resilience and growth potential for tech firms of all shapes and sizes. Meanwhile, other sectors of the economy have been devastated. For AMC Entertainment (AMC), the global pandemic brought its business to a nearly complete halt for months and the impact might linger.
What’s Going On?
AMC is the largest movie exhibition—the vernacular used within the industry—firm in the U.S. and throughout much of the globe, with roughly 1,000 theaters. But AMC’s standing as one of the biggest players in the movie theater business hardly isolated it from the pandemic that forced theaters and other non-essential businesses to close.
Theaters have been hit particularly hard because they have very few options to transition to take-out or delivery like restaurants or move to digital offerings. AMC suspended operations at all of its domestic and international theatres between February 23 and March 17.
Worse still, its U.S. operations “remained suspended for the entire second quarter ended June 30,” while it resumed limited operations in early June in some international markets. “It should be no surprise to anyone that with our operations shut the world over, and almost no revenues coming in the door, this was the most challenging quarter in the 100-year history of AMC,” CEO Adam Aron said in prepared second quarter remarks on August 6.
With this in mind, AMC’s Q2 sales tumbled roughly 99% from $1.51 billion in the year-ago period to $18.9 million. Meanwhile, it plummeted from adjusted earnings of +$0.08 to a loss of -$5.44 per share.
The company did reduce its global cash outlays by between 80% to 90%, which included the renegotiation of almost all of its theater leases, and made other efforts to help its business during these crazy times. “The result of all these actions during the quarter combined with this successful debt restructuring extends our ability, if need be, to weather a hypothetical suspension of all our theatre operations globally into 2021,” AMC’s CEO continued.
Outlook
Looking ahead, AMC is set to reopen more of its operations. The theater giant said that it had already reopened more than 130 international theatres, as of the end of July. The company also stated that “essentially all international theatres should reopen in August” and that it “expects to open approximately two-thirds or more of our U.S. theatres in August.”
This is a positive sign for AMC and investors. But it’s worth remembering that even if theaters are allowed to reopen, it’s hard to imagine that there will be much demand. And the problem is two-fold. There are people who won’t go because of the coronavirus, while others might be willing, but won’t head to the theater because the movie slate is out of whack.
For instance, Disney (DIS) is ready to release its live-action Mulan for $30 on its new streaming service, after months of Covid-19 related delays. Others blockbusters, which are vital to theaters and studios, have also been delayed and might be forced to make similar video-on-demand moves soon—or wait until there is evidence of packed theaters.
With this in mind, AMC did make news in late July when it struck a deal with Comcast’s (CMCSA) Universal Studios that allows Universal to release films digitally after only 17 days of exclusivity in theaters, down from 75. The move will help provide AMC a share of the revenue from premium VOD releases, but its longer-term implications are relatively unclear.
Bottom Line
The worst is expected to be over for AMC, with our current Zacks estimates calling for its third quarter revenue to fall 70%, with Q4 projected to be down 40%. However, its bottom-line outlook appears rough.
On top of that, AMC stock was already on a downward trend over the last five years, as Wall Street worried about the rise of streaming services like Netflix (NFLX).
AMC currently earns a Zacks Rank #5 (Strong Sell), alongside “D” grades for both Growth and Momentum in our Style Scores system. AMC is also part of an industry that sits in the bottom 4% of our more than 250 Zacks industries.
AMC stock is trading at around $4.50 per share, which might be enticing for some investors. But it’s likely prudent to stay away from the stock until there is more evidence of a return to even a small shred of the normal movie-going industry.
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