Avoid AMC Stock After 15-Cent Tickets

AMC Entertainment AMC — which operates over 1,000 movie theaters around the world — will open over 100 of them next week at the 1920 ticket price of 15 cents, according to Techcrunch.

Should you bet that this clever marketing gimmick — that 15 cent ticket will only be available for one day to a limited number of guests — means it’s time to buy stock in AMC?

Stay away from this stock! The movie theater industry was in bad shape before March 2020 and Covid-19 just made things harder.

The biggest threat to AMC — 31.2% of its shares are sold short — has been Netflix NFLX and other streaming services that offer consumers a much wider variety of content at a lower price from the convenience (and relative safety of their couches). AMC responded by turning its movie theaters into super-sized man caves with wide reclining seats, adjustable tables, and food and drink service — all for an increased price.

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Covid-19 forced its U.S. theaters to shutter in a government mandated effort to slow disease transmission. Meanwhile, social distancing has made it nearly impossible for Hollywood to produce new films that would draw people into movie theaters.

AMC says it is taking action to make its theaters safe through its AMC Safe & Clean. As TechCrunch noted, this includes enforcing social distancing between parties, extra time between shows for cleaning, high tech vacuums and upgraded air filtration. AMC backtracked from its June 2020 position that masks were optional — now it will require all guests and associates to wear them.

In light of these awful business challenges, will enough AMC guests be willing to risk their lives to spend over 90 minutes in an enclosed theater with other people — some of whom might be spreading Covid-19? Maybe in 2022, says one analyst, however it is unclear whether AMC has enough cash to last until then.

AMC’s Financial Woes

Leawood, Kansas-based AMC was founded in 1920 and is the world’s largest movie theater chain. AMC went public in December 2013 at $19.63 a share and by August 13, it had lost 73% of its value — ending the day at $5.31.

AMC’s most recent financial report — delivered August 6 — was miserable. For the quarter ending June 2020, AMC lost $561 million in the quarter. Its loss of $5.38 a share was $1.08 worse than analysts expected, according to FactSet.

For those looking for a glimmer of good news, AMC’s 98% revenue plunge to $18.9 million was nearly $11 million more than analysts expected, according to Barron’s.

CEO Adam Aron said “It should be no surprise to anyone that with our operations shut the world over, and almost no revenues coming in the door, this was the most challenging quarter in the 100-year history of AMC.”

To its credit, AMC is not sitting still. It slashed global cash outlays by “80% to 90%” — renegotiating most of its global theater leases and dismissing most of its employees. And by the end of August AMC expects all its international theaters and two-thirds of its U.S. theaters to be open, according to Aron.

Sitting on a mere $498 million in cash and cash equivalents, AMC faces a tower of debt — including $5.5 billion in corporate borrowings, $220 million in other long-term liabilities, and $93.9 million in finance lease liabilities, according to the company.

AMC claimed that an August 7 bond exchange will “give it the liquidity it needs to stay in operation through the public health crisis,” according to Variety

S&P Global was not as impressed with the deal. While the ratings agency said the deal would “lower AMC’s interest burden and risk of a default, AMC’s capital structure remains unsustainable,” according to DowJones.

AMC cut a deal for a share of revenues from Universal Studios’ premium video-on-demand within 17 days of its movie releases in the theaters (down from the previous 90 days). Variety reported that critics panned the deal — expecting it to lower theatrical attendance.

Analyst Outlook For AMC

The outlook for the industry is bleak.

In mid-July B. Riley FBR analyst Eric Wold cut his stock price target for AMC from $5 to $4. For the industry, he forecasts a 75% decline in the third quarter and 50% in the fourth quarter of 2020. In 2021, he anticipates industry revenues to be down 20% from 2019, according to Hollywood Reporter.

Wold was uncertain about the second half of 2020 release schedule for new movies and expressed doubt that movie theaters could reopen profitably without such “new film content.”

Wold expects movie theater stocks to trade based on “normalized levels in 2022 and beyond.” Can AMC last that long?

In the second quarter of 2020, AMC burned through $270 million in free cash flow. If that rate of cash burn continues, how long will AMC’s $498 million in cash last? If not more than two quarters, can it generate cash from operations or borrow more?

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