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Semafor’s Liz Hoffman and Bradley Saacks produced a stat in their March 7th Business newsletter that is terrible news for AMC Entertainment Holdings (AMC) shareholders.
According to Semafor, the domestic box office is way below the pre-pandemic highs. It might never return to the 2019 levels when ticket sales in a single quarter were well above $3 billion. Since the beginning of 2020, there’s only been one quarter where box office sales jumped over $2 billion. It’s been downhill ever since.
While inflation concerns and higher interest rates don’t help, the evidence suggests that moviegoers aren’t nearly as committed to heading to their local theater for a night out as they once were. And Covid might not have anything to do with this reality.
If you own AMC stock or are thinking about buying, think twice. Here’s why.
Year to Date, Business Hasn’t Been Awful
Not all is lost when it comes to a domestic box office. According to Box Office Mojo, the year-to-date box office through March 7th was $1.21 billion, 29.7% higher than in the same period a year ago and $736.4% higher than in the same period in 2021.
So, if you're an AMC shareholder and look at this stat with a glass-half-full view, it looks pretty good. However, in the same period in 2018, the box office sales were $2.15 billion, 77.3% higher than in the same period in 2023.
As Semafor points out, business appears to be getting worse.
In 2022, the total domestic box office was $7.37 billion. The last time it was this low -- other than the Covid-related years of 2020 and 2021 -- was in 1999 when they were $7.34 billion.
The only problem? In 1999, the U.S. population was 279.2 million, 29% lower than an estimated 394 million in 2023. The average ticket price in 1999 was $5.08.
If even half of the 115 million additional Americans alive today were alive in 1999 and bought a single ticket, that’s an additional $292 million, and in my estimation, that’s being conservative.
Another way to look at it: In 1999, there were 1.44 billion tickets sold, 629,5 million more than in 2022. If those tickets sold for the 2022 average price of $9.17, that would be an additional $5.8 billion at the box office, or more than $12 billion.
From this historical perspective, business is terrible and unrelated to Covid.
Less Content = Less Revenue
The current malaise at the box office may be a temporary thing. However, Hollywood studios are dealing with this reality by producing fewer films. When movie theaters don’t have content for moviegoers, they can’t sell tickets, let alone more tickets.
That’s a problem.
According to a Variety article from February 2022, the major studios planned to release 71 films. Top Gun: Maverick was the top release last year. That was up from 57 in 2021 but down from 81 in 2019 and 2018. Not surprisingly, box office sales averaged $11.63 billion in those two years, 58% higher than in 2022.
Box Office Mojo points out that overall releases in 2022 were 496. In both 2019 and 2018, they were over 900. Again, a movie theater is only as good as the content that it gets from the studios. When they’re getting half the amount of releases, that puts enormous pressure on the blockbuster films to deliver above-average returns. If those fail, movie exhibitors are in really tough.
AMC reported Q4 2022 results on Feb. 28. It was the company's 14th consecutive quarterly loss and fourth straight year in the red. The company is suffering from an overall drop in films and attendance. The damage would be even worse if not for the high ticket price.
According to Barchart.com data, the six analysts covering AMC stock have a Moderate Sell rating and a mean target price of $2.05, 67% below where it’s currently trading.
The Bottom Line
In August 2022, I wondered if AMC was ready to follow Cineworld down the bankruptcy path. I argued that the gymnastics it was undertaking to strengthen its balance sheet would fail and that its business was in considerably worse shape than in June 2020, yet it was trading for 10x the value.
Wisely, investors have seen through the company’s charade and knocked its stock down 75% in the six months since.
When I wrote about AMC last August, it had an Altman Z-Score of -0.56. Anything below 1.81 is considered distressed and could result in bankruptcy proceedings within the next 12-24 months. Today, it’s even worse, at -0.88.
The company continues to dilute shareholders to raise funds to pay down its debt. It finished 2022 with net debt of $9.4 billion, up from 2021 but down considerably from $11.0 billion at the end of 2020.
Even if it can issue enough preferred stock to continue reducing its net debt, the business does not have an accommodating future. That’s a reality that AMC bulls can’t ignore.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.