Summary: OVERPRICED
Score: 5/20
MOS: 0%
Share Price: $2.95
Sticker Price: $0
Is AMC (AMC Entertainment Holdings) a good investment?
AMC, originally named American Multi-Cinema, was founded in 1920 and is headquartered in Leawood, KS. AMC is the largest movie theater chain in the world. They have 2,200 screens in 244 theaters in Europe and 8,200 screens in 661 theaters in the US.
COVID-19 has put a lot of stress on some industries including restaurants, cruise lines, and movie theaters. Some people believe these industries can recover which is causing people to invest in these types of businesses at all time lows, expecting them to bounce back up. Unfortunately for movie theaters, that appears unlikely.
With the growing popularity of online streaming platforms such as Netflix, HBO, Amazon, Disney+, and Hulu, people are finding that viewing movies and long-format TV series is much more convenient. When you add a quarantine to the mix, it only makes online streaming more popular and on the flip side, theaters less popular.
Personally, I love movies and some movies are specifically made to be viewed in a theater. For example, movies such as Christopher Nolan’s The Dark Knight, The Dark Knight Rises, and Inception are shot on IMAX and intended to be viewed on a large screen but not everyone appreciates the big screen as I do.
This article from Market Watch states that 70% of people would still rather watch movies at home, even if theaters reopen. This is not a good sign for theaters.
Let’s dive into economics of movies for moment…
Today, if a family of four wants to visit the movie theater, 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
Ouch!
Now compare that to staying in and watching a movie on Disney+. That only costs you $6.99/month and you can watch unlimited movies! From the consumer economic standpoint, it doesn’t even make sense to see movies in theaters.
Now let’s dive into the business side…
A movie theater doesn’t actually make a lot of money from movie ticket sales. Movie theaters make money from food and drinks.
Here is how the movie ticket sales break down for theaters…
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.
Now let’s talk about how theatrical releases can make money with digital releases on platforms such as Disney+ and Amazon….
Based on this article from TheWrap.com The first successful theatrical release that skipped theaters and went straight to digital was “Trolls World Tour” which released in March of 2020. The movie was produced with a budget of $90M and within three weeks of the release, the film earned $100M through digital rentals of $19.99. I did some homework and found that movie studios will usually take about 80% of the digital rental.
The way we watch movies is changing. I love theaters but that’s not where the market is heading. I did some homework on future major releases such as Free Guy, Wonder Woman 1984, Ghostbusters: Afterlife, No Time to Die, and Black Widow and I can’t find confirmation on digital releases. Not yet, at least. I know studios are counting on theaters coming back but I doesn’t look like consumers are demanding it. Digital releases may be the future and studios need to figure out a creative way to make their money back.
To answer the question is AMC a good investment? The obvious answer is NO. Aside from the low consumer demand for theaters, when you take a look within Tykr you can see the score is 5/20, which shows the financials are weak. Also, with a MOS of 0% (share price of $2.95 vs a sticker price of $0) this company is in dire straights.
—
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.