AMC Stock Looks More Like a Box Office Bomb

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After nearly a year, the novel coronavirus has inflicted cruel brute force on certain sectors (live entertainment, restaurants, hospitality) and injected steroids into others (home improvement, videoconferencing, gaming). Somewhere in between, you’ll find businesses at a critical infection-inflection point. Among those I count AMC Theatres (NYSE:AMC). AMC stock has bounced up and down as states loosen and tighten their Covid-19 restrictions, and thus permit or prohibit theater attendance.

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AMC stock is off two-thirds year over year, its share price wallowing at $2.50 before news of a possible breakthrough coronavirus vaccine sent the stock shooting up 60% today.

We’ve seen this before. Peaks and valleys in AMC stock sent shares as much as 160% higher and slump by nearly 70%. As they say in Hollywood, the plot thickens. What next?

AMC Stock and the Covid-19 Connection

As I’ve had to write quite a bit lately, this investment’s health depends largely on our nation’s economic and physical health. And right now, neither looks very good. With a follow up to the CARES Act still gridlocked in Congress, many Americans are hanging by a financial thread and when that happens, discretionary spending is the first thing to go.

And if Joe Biden is right about the “dark winter” ahead, you can bet the current spike in Covid-19 cases will morph into more quarantining, even if it’s true that pharmaceutical companies are making headway in finding a vaccine.

That’s great news for the purveyors of stay-at-home diversions such as Netflix (NASDAQ:NFLX) and Nintendo (OTCMKTS:NTDOY). In 2020 they’re up 56% and 48% respectively.

Yet the performance of those stocks suggests another factor at play. As living room entertainment options grow — and streaming companies produce more outstanding films that bypass the big screen — a trip to the movies isn’t what it used to be. Once the U.S. turns the corner on Covid-19, this question will remain: Do people really need to hit the megaplex anymore? Yes, hearing a jet plane roar at 100 db on a maxed-out sound system and experiencing that as part of a live audience can’t be duplicated at home. Well, most homes anyway. Most definitely not mine. But at least the popcorn is way, way cheaper, even if it were $100 a bucket.

A Theater Chain, Behind the Curtain

Outside the external forces of the pandemic and competition from other entertainment sources, what have the financials behind AMC stock done to encourage or discourage investors? At the most basic level, there’s a massive mismatch going on somewhere.

When AMC reported its third quarter results on Nov. 2, you could hear more shrieks than at a screening of the latest Nightmare on Elm Street sequel. Or maybe this was the sequel. The quarterly loss of $905.8 million mirrors a pre-Covid-19 loss of $54.8 million during the same quarter in 2019.

The latest earnings report takes on an even starker tone when you consider that as of the latest quarter, AMC had reopened 539 locations, or 90% of its 600 U.S. movie houses, according to the Los Angeles Times. Clearly, consumer behavior has undergone a seismic shift and I’ve heard that echoed anecdotally and repeatedly when talking with friends. They’ve said something to the effect of, “Just because the theaters are open doesn’t mean it’s safe to go back.”

AMC and the Potential Sad Ending

Yet more context is needed to understand just what AMC stock is up against. As Chief Executive Officer Adam Aron stressed in a statement, “Theater operations in the U.S. were suspended for nearly two-thirds of the quarter.” What’s more, there hasn’t been the same steady flow of film releases to lure viewers back into the seats.

Wall Street types have also floated the possibility that AMC will need to file for Chapter 11 bankruptcy restructuring, its debt load is that crushing. All of this makes AMC stock too radioactive to touch now.

For his own part, Aron has shown some Tinseltown moxie with his script, quoting Winston Churchill’s “Fight Them On The Beaches” speech three times during the third quarter analyst call.  As relayed by the Hollywood Reporter, he told investors at one point, “We are fighting this virus with all of our smarts and all of our might.”

If AMC loses that fight, that’ll be a damn shame. All of us have strong memories connected to movies. My mom and dad met in a South Philly cinema as teens in the 1940s and so far as I know, it could’ve been an AMC. The chain marks its 100th anniversary this year. I’d love to say “celebrates.” But what’s to celebrate?

Or, if you prefer, allow me to go Star Wars geek on you and channel my inner Han Solo: I’ve got a bad feeling about this.

On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.