AMC Entertainment Holdings (AMC)

AMC Entertainment Holdings (AMC)

Is AMC stock a good buy?

In this article, we review AMC stock to determine if it’s a good buy, sell, or hold.

Covid-19 caused a reduction in theater attendance in the last two years. Since Covid-19 has started to drift away, will this business model recover? In this article, we break down AMC and the movie theater industry to understand if this is the best time to invest or if we should keep looking for other stocks.

Table of Contents

AMC Theaters is the largest theater chain in the world ahead of Regal and Cinemark Theaters. AS of today, they have 950 theaters and 10,500 screens around the globe. They are located in countries including the US, UK, Ireland, Italy, Spain Sweden, and Finland. AMC was founded in 1920 and is based in Leawood, Kansas.

Tykr Rating 

  • Summary: Watch
  • Score: 10/20
  • MOS: 1%
  • Share Price: $13
  • Sticker Price: $13

Past Tykr Rating from 12/13/2021

  • Summary: Overpriced
  • Score: 5/20
  • MOS: 1%
  • Share Price: $24
  • Sticker Price: $24

AMC Company History

  • AMC was founded by Maurice, Edward, and Barney Dubinsky, traveling melodrama performers. They originally named the theater Durwood Theaters.
  • By 1961 they had 10 theaters which were located around Kansas.
  • In 1963 they built their first multiplex model which is essentially a building with multiple screens. From an economic standpoint, this allowed the same number of staff to manage multiple screens at once. A business model that proved to be significantly more profitable.
  • In 1968 Durwood Theaters was renamed Royal Cinema but soon after the name was changed to American Multi-Cinema.
  • By the 1980s they started experiencing significant growth and in 1983 they originally went public.
  • In 1985 they built their first multiplex overseas. A 10-screen theater in the UK.
  • In 1988, they announced a joint venture with United Artists and Cinema International Corporation (a partnership of Paramount Pictures and Universal Studios) to operate under the name AMC.
  • In 1995 they pioneered the megaplex which was a theater that could accommodate thousands of people at once. The first one opened in Dallas, TX.
  • In 2004, AMC was acquired by Marquee Holdings, an investment vehicle controlled by J.P. Morgan Partners. This event caused AMC to go private.
  • In 2006, AMC announced a new IPO but due to uncertain market conditions, the plan to go public fell through.
  • In 2010, AMC finally went public again.
  • In 2012, AMC was acquired by Chinese conglomerate Wanda Group for $2.6B. The acquisition made Wanda the world’s largest cinema chain.
  • In 2016, AMC acquired Carmike Cinemas, which had 276 theaters and 2,954 screens in 41 US states. Carmike rebranded its theaters to AMC.
  • In 2017, AMC announced it would cut costs by $30M by reducing operating hours and cutting staff. The company started to experience profitability issues due to the increasing popularity of streaming services like Netflix.
  • In March of 2020, AMC announced the closure of all theaters due to Covid-19. 
  • In April of 2020, AMC announced it would no longer carry films from Universal Pictures after NBCUniversal CEO Jeff Shell commented on The Wall Street Journal that the studio wanted to release films via streaming at the same time as theatrical releases. 
  • In June of 2020, AMC stated it had “substantial doubt” that it would remain in business.
  • In July of 2020, AMC and Universal resolved the dispute with AMC agreeing to a shorter theatrical window of 17 days before Universal could release their films on streaming.
  • In August of 2020, AMC began opening select locations in the US. In honor of the company’s centennial year, AMC offered movie tickets for $.15 and promoted the offer as “Movies in 2020 at 1920 prices”.
  • AMC tried to open two-thirds of its locations in time for the September 2020 release of Tenet.
  • In January of 2021, AMC stated that it had raised $917M in new funding. They believed the new funding should allow them to survive the effects of Covid-19.
  • One day after the announcement of the $917M in new funding, the Reddit community (r/wallstreetbets) started a short squeeze. Essentially, large institutions were betting against AMC (shorting the stock) and the Reddit community started buying massive volumes of shares to cause the large institutions to lose money. The share price surged by 300%.
  • In March of 2021, AMC announced its revenue had fallen by 88% year-over-year. CEO Adam Aron stated, “this is the most challenging market condition in the 100-year history of the company.”
  • Later in 2021, AMC announced it would accept Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Dogecoin with the motive to attract more customers back to theaters. AMC also announced it will try to host musical events, NFL games, and UFC fights as another way to increase revenue.

AMC Business Model

A movie theater doesn’t actually make a lot of money on movie ticket sales. Movie theaters make money on food and drinks. In fact, about 80% of movie theater revenue is generated from food and drink. This article from businessinsider.com states that approximately 71% of movie theater attendees purchase concessions. 

Here is how the movie ticket sales break down between theaters and movie studios. As you can see, movie studios take the majority of the revenue from ticket sales.

  • Weeks 1 and 2: Most theaters will take between 0% and 25% of the ticket sales. In many cases, theaters will take 0% to get top priority on movie showings.
  • Weeks 3 and 4: Movie theaters can take 45% – 55% of the movie ticket sales. At this point, the number of tickets purchased for new releases has significantly dropped and movie studios are willing to give more profit to the theater.
  • Week 4 and after: Some movies will drop from the screens but if they don’t the profits can hold at 45% – 55% or increase slightly based on contract agreements.

AMC News

This article from forbes.com is titled “Covid Isn’t Why Americans Aren’t Going To The Movies”. Today, 62% of American adults are comfortable going to a movie theater compared to 12% in May of 2020 but 49% of Americans are no longer interested in buying tickets. The reasons include major studios are releasing movies to digital streaming services sometimes at the same time as a theatrical release and sometimes a few months later. If the release is delayed, people are okay waiting. Another major reason for the decline is people enjoy watching movies from the comfort of their own homes as opposed to theaters and people said the expense of taking a family is just too high. 

Today, if a family of four wants to visit a movie theater in the US, they might pay close to $100 (Estimated prices below).

  • 2 adults x $15 per ticket = $30
  • 2 children x $10 per ticket = $20
  • 1 bag of popcorn = $10
  • 4 sodas x $6 per soda = $24
  • Total = $84

This article from Reuters.com states that meme stock interest has been in severe decline. GME is down 55% from its all-time high and AMC is down 77% from its all-time high. It’s important to note that the market is severally down globally but the question is, will meme stocks recover? This article goes on to state that Top Gun: Maverick has pulled in $291M in North American box office sales and it predicts to pull in more than $1B in global sales. This movie could be one of the best box office performers of the year and will be a gauge to pay attention to for AMC.

This article from investorsplace.com highlights comments from Goldman Sachs saying AMC is now On Sale and a potential buying opportunity. Goldman believes this company will take off when the market starts to rally because more theaters are opening since Covid-19 has waned. 

This article from tucollegian.org zooms out and provides more perspective on the movie theater industry. Over the last 40 years, the highest number of tickets sold in movie theaters occurred in 2002 and since then, ticket sales have been in decline. The reason is the convenience of watching movies started to increase in the late 90s thanks to Netflix original business model of mail-in DVDs. Then in 2007, the game changed when Netflix introduced its streaming service. Over the next 10 – 15 years we saw the competition rise with other streaming services including HBO, Disney+, Hulu, Amazon Prime, Apple TV+, Showtime, Paramount, Peacock, and more. When Covid-19 hit in 2020, that was “the straw that broke the camel’s back.” That definitive moment in time caused people around the globe to reduce and even stop attending theaters. The affordability of high-definition TVs and streaming services has replaced the movie theater experience.

This article from fool.com provides excellent context on the numbers. Yes, AMC’s sales are increasing but when compared to pre-pandemic numbers, it’s not too impressive. Q1 2022 revenues were $786M which is a nice increase from Q1 2021 revenues of $148M. However, revenue in Q1 of 2020 were $942M. Q1 2022 attendance was 39 million ticket sales but Q1 2020 attendance was 60 million ticket sales and Q1 2019 was 79 million ticket sales. Even blockbusters like Top Gun: Maverick might not be enough to bring AMC back to pre-pandemic numbers.

This article from howstuffworks.com states that movie theaters have been trying to remain profitable by increasing ticket prices while at the same time, HDTVs have come down in price. Since 2006, the manufacturing costs to make TVs have significantly reduced. Companies like Sony, Samsung, and LG found ways to make better products at a lower cost. People discovered they could create their own movie theater-like experience in the comfort of their own homes.

This article from cnet.com breaks down the costs to buy a new TV over the last 20+ years.

  • 65” 4K TV in 2021 – $899
  • 65” 4K TV in 2012 – $2,500 – $6,000
  • 50” HD TV in 2007 – $7,000
  • 40” Plasma TV in 1997 – $22,000

To give you perspective, there used to be a thing known as a “TV Repair Service.” Have you ever heard of a TV Repair Service? I’m sure you would have to go back to the 1990’s or earlier to remember this service. For some of you readers, this is probably well before your time. Today, TVs are so cheap that if they stop working, consumers simply throw them out and buy a new one. The point is, the barrier to entry for watching high-quality content in your own home is extremely low.

AMC Competition

AMC Entertainment (AMC)

  • Summary: Watch
  • Score: 10/20
  • MOS: 1%
  • Share Price: $13
  • Sticker Price: $13
  • Revenue: $2.5B

Cinemark Holdings (CNK)

  • Summary: Watch
  • Score: 10/20
  • MOS: 1%
  • Share Price: $17
  • Sticker Price: $17
  • Revenue: $1.5B

IMAX Corporation (IMAX)

  • Summary: Overpriced
  • Score: 9/20
  • MOS: 1%
  • Share Price: $17
  • Sticker Price: $17
  • Revenue: $254M

There are other movie theater chains including Marcus Theaters, IPIC, and Cineplex, but all are private.

AMC 4M’s

Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.

MOS: With a score of 10/20, we can see the financials have improved since December of 2021 where the score was 5/20. The issue is still the MOS which sits at 1%. This shows there isn’t a lot of upside potential.

Meaning: Although Goldman Sachs believes this stock may see a comeback, I have to disagree. Yes, I believe most stocks will see a rally when the market turns around but I don’t see movie theater stocks being wise long-term investments. I love seeing movies in the theater but I have to accept the fact that this is a dying business model. Streaming services and low-cost HDTVs are the two major contributors motivating people to stay home as opposed to heading to the theaters.

Moat: You can see that both Cinemark and IMAX have very similar ratings within Tykr. In my opinion, all three are just hanging on by a thread. The summer movie release schedule will always deliver a few blockbusters but once fall and winter hit, ticket sales tend to slide backward. All three chains may see an okay summer regarding ticket sales but I don’t see these companies sustaining for the long term.

Management: Adam Aron is the current CEO of AMC. Prior to AMC he served as President and CEO of Norwegian Cruise Lines from 1993 – 1996 as well as Chairman and CEO of Vail Resorts from 1996 to 2006. In 2006, he formed a personal consultancy and in 2015 he was named CEO of AMC. Aron definitely has great experience in the entertainment and travel industries but no matter what his experience is, fighting the demise of the theater industry is an uphill battle. 

AMC Financials

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018: $5.4B
  • 2019: $5.4B
  • 2020: $1.2B
  • 2021: $2.5B
  • Revenues have increased since 2020 but they are close to 2019 or 2018.

Net Income (Found on the Income Statement)

  • 2018: $110M
  • 2019: -$149M
  • 2020: -$4.5B
  • 2021: -$1.2B
  • Net income has improved since 2020 but the profits are still well into the negative numbers.

EPS (Found on the Income Statement)

  • 2018: 1.06
  • 2019: -1.44
  • 2020: -20.46
  • 2021: -2.66
  • EPS has improved since 2020 but is still in the negative.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018: -$53M
  • 2019: $60M
  • 2020: -$1.3B
  • 2021: -706M
  • Free Cash Flow is also still in the negative.

Total Assets (Found on the Balance Sheet)

  • 2018: $9.4B
  • 2019: $13.6B
  • 2020: $10.2B
  • 2021: $10.8B
  • Total Assets have remained somewhat level.

Total Liabilities (Found on the Balance Sheet)

  • 2018 = $8.09B
  • 2019 = $12.4B
  • 2020 = $13.1B
  • 2021 = $12.6B
  • Total Liabilities have also remanded flat.

Total Debt (Found on the Balance Sheet)

  • 2018 = $4.7B
  • 2019 = $5.3B
  • 2020 = $6.3B
  • 2021 = $5.8B
  • Total debt has slightly decreased since 2020 which is a good sign.

Total Equity (Found on the Balance Sheet)

  • 2018 = $1.3B
  • 2019 = $1.2B
  • 2020 = -$2.8B
  • 2021 = -$1.7B
  • Total Equity has improved since 2020 but is still in the negative.

Is AMC stock a good buy?

When you take a closer look at the financials, the balance sheet isn’t too bad which is why the stock has a score of 10/20. However, there is a lot of room for improvement on the income statement and cash flow statement. The major issue with this stock is the meaning. After Covid-19 has subsided, the data isn’t showing movie theaters returning to their previous all-time high ticket sales. This is a great example of why looking at all 4Ms can help you reduce the risk of losing money. There are investors who may hear comments from news sources or analysts and make a buying decision based on those comments. Make sure you look past the numbers and look at the business, industry, and competition, especially with meme stocks. A 4M analysis can cut through the clutter and help you understand the truth. In this case, AMC stock is not a good buy. 

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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