Tag Archives: AMC

If MoviePass Dies, AMC Is Going to Feel the Pain

We may not get a Hollywood ending for MoviePass parentHelios and Matheson Analytics (NASDAQ:HMNY). The stock tumbled 31% on Tuesday after an SEC filing confirmed the cash crunch facing the seemingly unsustainable business model.

Helios and Matheson had just $15.5 million in available cash at the end of April. There’s another $27.9 million on deposit with merchant processors from the sale of annual and quarterly payment plans that will be available to Helios and Matheson as the year plays out. There doesn’t seem to be a lot of dry powder left for a company that admits it’s losing more than $20 million a month. MoviePass is on the brink of buckling absent a cash infusion or an outright buyout, but multiplex operators that are talking down MoviePass may regret getting what they want if the movie subscription service goes belly up.

AMC 14 in Saratoga.

Image source: AMC Entertainment.

The silver screen goes for the bronze

MoviePass in its current form is built to scale quickly at the expense of burning through a ton of dough in the process. For $9.95 a month, a person can catch a standard movie screening every single day at most local movie theaters. Entertainment smorgasbord subscriptions are exploding in popularity, but it’s typically through digital platforms where costs can be reasonably controlled.

MoviePass is bananas. It has to pay retail prices at most chains, and even AMC Entertainment (NYSE:AMC) is trolling the platform these days. MoviePass came up during AMC’s earnings call earlier this week. AMC CEO Adam Aron points out that “hundreds of thousands” of MoviePass subscribers come to AMC Theatres, doing so at a frequency of 2.62 times in March and 2.75 in April. MoviePass is paying AMC $12.02 per movie, far more than the $9.78 average price per ticket at AMC during the quarter. MoviePass members tend to see more expensive screenings. Why go see a cheaper matinee when it’s on someone else’s dime?

AMC has been openly critical of MoviePass, arguing that it devalues the theatergoing experience. There’s some truth to that opinion, and Aron took a swing at the sustainability of its model during Monday’s earnings call.

“I took a calculator out, and I multiplied 2.75 times 12.02,” Aron said. “I got to a number that was considerably larger than $9.95.”

AMC has been dissing MoviePass since last summer, when Helios and Matheson acquired a controlling stake in the service, slashing its price to $9.95 a month. The problem with movie theater chains trying to work against MoviePass than finding a way to make it work is that if MoviePass goes under, most of those subscribers aren’t coming back. MoviePass may very well go under this year, but so will the hundreds of thousands of members seeing nearly three movies a month at AMC. Those who do stick around will naturally be buying cheaper tickets on average.

Tickets, please

The cash crunch is real. Helios and Matheson stock took a hit in mid-April when it raised $30 million through a dilutive stock offering. Now we learn that MoviePass had just $15.5 million in available cash less than two weeks later.

It’s going to be easy for MoviePass to raise money through another stock offering, and it’s a bad credit risk now that even its auditors have voiced their doubts about the business. MoviePass has been able to improve its cash flow by selling discounted annual passes in the past, but would you pay up front for a service that may not be around during the term of the offer?

A silver lining here is that MoviePass did say that it’s been able toreduce its cash deficit during the first week of May by more than 35% after rolling out initiatives that curb the use and more importantly misuse of its product. MoviePass accounts are now tethered to a single smartphone, preventing the widespread sharing in the past of subscriber accounts with friends and family. MoviePass is also now enforcing its rule that limits the ability to see the same movie twice, a move that curbs usage with some of its more active users.

The model needs mending. MoviePass mentioned in an interview last week that it would be rolling out new plans for families, groups, and even the premium screenings that it doesn’t presently offer. It also has ambitious plans to subsidize some of its losses through advertising, selling user data, sponsorships, and marketing merchandise. It will need time to see any of these incremental revenue streams through, but now time is not on its side.

The same company that was saying that it’s running at a cash-deficit average of $20 million a month through the six months ending in March is now saying it lost an average of $21.7 million through the seven months ending in April. In other words, it lost more than $30 million last month.

MoviePass may go down if it doesn’t find a fat-cat suitor interested in reaching its nearly 3 million members, but if it does go down, it will probably take a few cocky multiplex operators down in the process.

AMC Entertainment Holdings Inc Stock Will Soar on Summer Blockbusters

Sometimes, industries that are left for dead aren’t actually going to die. In that scenario, stocks that are priced-for-death could stage huge rebounds. Such is the case with AMC Entertainment Holdings Inc (NYSE:AMC) and the movie theater industry. Movie theaters were presumed to be a dying breed thanks to technology making at-home entertainment better, cheaper, and more convenient than ever. As such, AMC stock dropped from nearly $35 in late 2016 to just over $10 in late 2017.

As it turns out, though, movie theaters aren’t as dead as everyone thought. The 2018 box office is off to a red-hot start, and with a stellar movie line-up still to come, it looks like 2018 could set box office records.

How does the box office set records in a declining movie industry? Maybe the movie industry isn’t as bad off as we all thought. Although at-home entertainment is growing in popularity, movie theaters are adapting to become experience destinations that consumers still love to frequent.

At the heart of this rebound is AMC stock. It has bounced off its $10 lows in late 2017 to above $17 today, a near 70% rally in a just a few months.

This rally in AMC has more firepower. Fundamentals imply that shares remain materially undervalued in a long-term window. Meanwhile, the stock could get a near-term boost thanks to a robust summer movie line-up.

All in all, AMC stock looks like a buy here and now.

Here’s a deeper look:

Movie Theaters Aren’t Dead

We all know the story. Amazon.com, Inc. (NASDAQ:AMZN) is killing shopping malls, while Netflix, Inc. (NASDAQ:NFLX) is killing move theaters.

But maybe killing is the wrong term. Perhaps the better way to say this is Netflix and Amazon are forcing shopping malls and movie theaters to change.

Indeed, they are doing that. Malls have gone from pure shopping destinations with cheap food courts to multi-purpose experience destinations complete with shopping, restaurants, movie theaters, gyms, arcades (think Dave & Buster’s Entertainment Inc (NASDAQ:PLAY)), and much more.

This transition has worked, and as a result, mall-based retailers are reporting much better numbers and mall stocks are soaring. Just look at shares of Abercrombie & Fitch Co. (NYSE:ANF), Urban Outfitters, Inc. (NASDAQ:URBN), American Eagle Outfitters (NYSE:AEO), Macy’s Inc (NYSE:M), and Nordstrom, Inc. (NYSE:JWN) over the past several months.

The trend is up, up, and away.

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Meanwhile, movie theaters have undergone their own transformation. They have gone from pure big-screen, movie-watching destinations to experience destinations with premium reclined seating, robust food menus, alcohol bars, and enhanced viewing and listening capability.

This transition has also worked. Movie theater attendance is up, and expected to rebound strongly this year after hitting a 25-year low.

Meanwhile, ticket prices are going up, as are both total and per capita concession spending (AMC reported that the number of attendees buying concessions has risen from 64% in 2011 to 71% today, while average concession spending per patron in the U.S. rose more than 5% year-over-year last year).

In the long-term, AMC will do just fine. Yes, Netflix adoption will rise by a ton over the next several years. But even with Netflix adoption in the U.S. at all-time high levels, movie theater attendance is inflecting upward. Clearly, the two can co-exist.

AMC Stock Is Undervalued

By my numbers, AMC stock is worth somewhere around $20 today.

Revenue growth trended around 5-6% per year before this year (acquisitions caused a huge spike in revenues). Over the next several years, revenue growth may be slower than that 5-6% range, but not much slower. Revenue growth of 3-5% seems sustainable long-term.

Meanwhile, operating margins normally hover around 6-8%. They should be able to stay in that range because concessions are the company’s big profit driver, and concessions spending is on the rise. Thus, 7% operating margins seem sustainable long-term.

Roughly 4% revenue growth over the next 5 years on 7% operating margins implies revenues of $6.2 billion and operating profits of $433 million in 5 years. Taking out $100 million to net interest expense, 25% for taxes, and dividing by 130 million shares, that equates to around $1.90 in earnings per share in 5 years.

A market-average 16-times forward multiple on those $1.90 earnings implies a four-year forward price target of $30. Discounted back by 10% per year, that equates to a present value of above $20.

Bottom Line on AMC Stock

Fears related to the death of movie theaters have been greatly exaggerated. As such, AMC stock remains materially undervalued at current levels.

Moreover, this stock could get a big boost this summer thanks to a blockbuster movie line-up which features Avengers: Infinity War, Deadpool 2, Solo: A Star Wars Story, Ocean’s 8, The Incredibles 2, Jurassic World: Fallen Kingdom, and Ant-Man and the Wasp.

As of this writing, Luke Lango was long AMC, AMZN, PLAY