1. Streaming is the new normal
According to le journal Wall Street, AMC’s multi-bagger rally was driven by retail speculation and an intentional short squeeze. Fundamentals play a less important role, but some investors may also be optimistic about the company’s ability to bounce back from the coronavirus pandemic now that 56% of Americans over 12 are vaccinated. AMC has reopened almost all of its sites in the United States.
But unfortunately, the new normal doesn’t seem so normal for AMC.
In July, Disney (NYSE: DIS) released Black Widow, the first Marvel film to hit theaters since the pandemic. Unlike previous Marvel releases, Disney also made the film available on its Disney + streaming platform through Premier Access, a service that allows users to rent it for a one-time fee of $ 30 in addition to the subscription fee. regular service.
Black Widow earned $ 78 million from national theaters in its opening weekend, compared to at least $ 60 million from Premier Access.
The film’s success on Premier Access is a terrible trend for the mainstream American film industry. Unlike theatrical releases, Disney won’t have to split ticket sales with theaters, resulting in higher profits for the House of the Mouse. The online versions also reinforce Disney’s competitive gap against streaming rivals like Netflix and could help stimulate growth in subscriber numbers.
It’s unclear how long Disney plans to continue with its double-release strategy, but if it becomes permanent (or if other studios follow suit), AMC could become an unnecessary middleman in an industry it once dominated.
2. Massive consumption of cash and a deteriorating balance sheet
With AMC’s future uncertain, investors should pay attention to the company’s current performance. This image is not pretty. First-quarter revenue fell 84% to $ 148 million – a slight improvement from the fourth quarter (when sales were down 89% from a year earlier), but not much evidence of a strong recovery. The company is also burning cash, reporting negative operating cash flow of $ 313 million during the period.
With just $ 813 million in cash and cash equivalents on its balance sheet, AMC will likely have to tap into the debt and equity markets to support its operations. And with $ 5.4 billion in business loans and $ 4.9 billion in operating lease debt (deferred rent for some of its properties), its balance sheet is already in bad shape.
Given these challenges, AMC has no business activity for a market capitalization of $ 19.5 billion, which is 43 times its 12-month revenue. Even if the company returned to pre-pandemic revenue of $ 5.5 billion (which seems unlikely), that would give the stock a price / sales (P / S) multiple of 3, 5, which is a bonus for a company with a shattered balance sheet that struggled to generate consistent profits even before the pandemic. (AMC reported a net loss of $ 149 million in 2019.)
An obsolete business?
The symbiotic relationship between movie studios and movie theaters is breaking down. And that could make AMC Entertainment an unnecessary middleman in film distribution. The company’s finances are also in shambles, which could lead to further dilution of debt and equity in the future. AMC’s stock should not trade at such a high valuation in light of these challenges.