AMC Entertainment (NYSE:AMC) stock is finally giving up its gains. The last three months have been tough for AMC stock, with a 57% decline in value. It is a well-known fact that online communities can be quite influential when it comes to profiting from memes.
They banded together and targeted heavily shorted or out-of-favor stocks with great success. The fundamentals of the movie theater industry continue to be grim, with ticket sales peaking twenty years ago and no signs that they will recover. Therefore, the bears have a strong case.
Hollywood’s biggest players have found a new way to generate revenue outside of just the box office: streaming services. This is because it becomes easier and more profitable for studios with less risk involved in making films, which you can then watch on these platforms rather than going out into theaters — where competition from other large movie productions often leads them to lose money.
AMC is therefore struggling against a secular trend. On the bright side, the movie theatre chain now has a lot of capital to restructure. Management is also conscious of retail investors. Consequently, AMC is expanding into areas attractive to millennial investors. For example, AMC is taking several cryptos as payment.
Theater chains are now launching a nationwide campaign to get you back into your local movie theater. The plan? Launch a $25 million ad campaign and announce ten new leases with existing locations. CEO Adam Aron agreed with Warner Brothers for an exclusive 45-day theatrical window to their 2022 film slate. But the tide is against AMC stock.
The Pandemic Changed Hollywood, and Movies, Permanently
Two years ago, the country’s movie theaters raked $205.3 million on Martin Luther King Jr weekend. Still, this year, they could only bring home a relatively small amount of money for their efforts — Domestic ticket sales clocked in at just over $84 million.
Considering the importance of long holiday weekends for box office performances, this may seem bad news. However, one must understand that serious concerns are surrounding the omicron variant. And that is having a major impact on outdoor activities.
It could not have come at a worse time for AMC. In October, the box office was booming with $638 million in ticket sales. It was due to several notable pictures such as “Venom: Let There Be Carnage,” “No Time to Die,” and more. The newest movie from the Marvel Cinematic Universe, “Spider-Man: No Way Home” set a new record for the highest opening weekend during the pandemic with $260 million. The latest entry in the Spider-Man franchise surpassed $1 billion in worldwide ticket sales quickly. “Star Wars: The Rise of Skywalker” is the last movie to reach one billion dollars in worldwide ticket sales.
However, the box office performance is now weakening. Apart from the tentpole superhero flicks, there are few, if any, movies moving the needle at the box office. That is why Hollywood wants to release these films directly on streaming services or as soon as possible after their theatrical release.
Warner Bros has signed a deal with AMC theaters to ensure their films are shown in theaters for 45 days. This is opposed to Warner Bros’ decision to release its 2021 movies simultaneously on its HBO Max streaming service and in theaters for the first 30 days. But the future is digital.
Impact of Recent Initiatives
Perhaps not surprisingly, the company is taking several initiatives to increase profitability. Most of these initiatives are millennial-friendly investment strategies. By investing in the latest trends, AMC ensures it grabs headlines and stays on the good side of Reddit.
For example, AMC now accepts Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD), and other cryptocurrencies for online purchases. In a recent study by Stilt, it was discovered that the vast majority of crypto buyers are millennials or Generation Z.
With 94% identifying as such and looking for financial freedom in cryptocurrency investments. They incidentally are also the ones driving the Reddit investing trend. So, the announcement makes sense in a broader context.
The company has even embraced the NFT craze. Theater-goers who purchase advanced tickets for the new Spiderman film received 86,000 NFT tokens from Sony Pictures.
This year, AMC will be entering a new market by selling its products at mall kiosks and convenience stores. In 2022, the mall is about to get a lot more delicious. The company plans on launching up five stores that will sell popcorn. AMC has a goal of 15 retail locations by the year-end. Moviegoers can enjoy a variety of treats at the new theater, including traditional and gourmet popcorn flavors as well as Coca-Cola Freestyle machines.
The company is looking to manufacture prepackaged and ready-to-pop microwavable popcorn that AMC will sell in supermarkets and convenience stores. It’s no surprise that the CEO of a company would want to diversify its revenue streams.
After all, when you’re in an industry hit by coronavirus last year and facing hard times financially, it makes sense for them to seek out new avenues towards success as soon as possible so they can get back on top again.
Finally, the movie theatre chain is also looking for ways to offer more variety in content offerings, including sports or pre-taped concerts, so you never know what might happen next at this theater chain.
Ailing Financials Continue to Hurt AMC Stock
The theater operator reported a quarterly loss narrower than analysts expected, leading to an extended trading drop. The company’s net loss for the third quarter was $224.2 million, or 44 cents per share, but their revenue grew 539% year-over-year to reach $763 million. Wall Street’s consensus estimate called for them to lose 53 cents on approximately $708.2 million revenue.
The CEO of America’s largest movie theatre chain took questions and addressed the company’s plans and performance. He said, “results were strong so far in the fourth quarter, which included October theater admissions that were the highest of any month since before the pandemic began.”
Unfortunately, Aron made this statement before the omicron variant spread quickly on American shores. The new variant could take down an already faltering global entertainment industry just as it was starting to rebound from the pandemic.
On the bright side, the company is taking a more cautious approach to borrowing. It still has $1.8 billion in liquidity that it can draw upon over the next 12 months. But stockholders have had to deal with a lot of dilution as AMC looks to get its mojo back. Over the past year, AMC has expanded its outstanding share capital from 107.7 million to 513.3 million exploring its increasing share price to cover up for losses and make payments on time.
Studios have also made it clear they no longer favor the three-month period where new releases are exclusively shown in theatres. That will further impact the financials of the business moving forward.
The movie theatre industry was not immune to the pandemic. In fact, due to their unique nature, movie theatres suffered the most. While many people flocked when it came time to watch zombie movies or superhero content under safe settings — there were still some who preferred relaxing home-viewing experiences over going elsewhere.
That trend will continue for the foreseeable future. Major Hollywood insiders like Ben Affleck have sounded the alarm that streaming is the future. He predicts that only 40 movies will feature theaters in the near future. Other major executives have also expressed similar sentiments.
AMC stock is fighting a secular trend. At the same time, its financial performance doesn’t justify the market capitalization in the least. There are a few bright spots here and there. Management is conscious of the need to diversify its revenue base; the biggest movies coming in 2022 will continue to drive footfall, and there is no fear of AMC declaring bankruptcy. Reddit investors will take solace in these facts. Nevertheless, there is virtually no hope that AMC stock will repeat its hyperbolic 2021 performance.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.