After seeing the rapid subscriber growth Helios and Matheson Analytics Inc (NASDAQ:HMNY) garnered with its MoviePass equity stake last fall, the movie theatre industry is beginning to take new steps to innovate and evolve. That means AMC Entertainment Holdings Inc (NYSE:AMC) too. AMC stock rallied almost 4% Thursday after the company announced a new all-access subscription plan as well.
For $19.99 per month, A-List rewards members will be able to see up to three movies per week. So long as there is availability for the showing, customers will be able to attend. This includes IMAX films, regular showings and 3D movies.
For its part, IMAX Corp (USA) (NYSE:IMAX) is embracing the move. CEO Richard Gelfond says the move won’t hurt the company’s economics and should actually bode well for IMAX going forward.
“We expect to see a surge in demand for IMAX tickets from this exciting new program, which should drive incremental revenue to IMAX theatres,” he said, and, from the press release: “Under the terms of the agreement between IMAX and AMC, AMC will ensure there is no reduction in IMAX’s overall economics.”
That almost makes me wonder if IMAX is the real winner here over anyone else. In any regard, movie theaters aren’t going extinct. But they are feeling the pressure from cord cutting.
A Revolution at the Movies
No longer do consumers have to wait a tremendous amount of time to see a film out of the theater, nor do they have to go to BlockBuster for the DVD. Simple pay $5 or $6 and rent the movie from Apple Inc. (NASDAQ:AAPL) or Microsoft Corporation (NASDAQ:MSFT) via Xbox and a whole living room full of people can watch it.
Again, this isn’t killing theaters, but it’s taking away the urgent feeling of, “I have to go see this now!” That’s why the theater-subscription concept is gaining traction. For theaters, the subscription model is a double-edged sword. More frequent visits may mean more food and beverage purchases, which garners massive (disgusting, in the eyes of customers) margins.
But if an all-you-can-see customer comes three times a week per month, they’re seeing shows at less than $2 a pop. If it’s a full showing, that’s taking the seat of someone who would be paying $8 to $10. But how many times will customers really head to the movies?
At one point the Helios CEO said subscribers were going, on average, to two movies a month. Given its higher price point, AMC may draw more than that. But it’s one solution to help keep customers coming into the theaters and one that, at least on the surface, shouldn’t erode margins.
Sizing Up AMC Stock
For the year, analysts expect earnings of just 14 cents, followed by 45 cents per share next year. On the revenue front, estimates call for 6.6% growth this year to $5.4 billion and almost 4% growth in the following year. However, it’s not clear if those estimates will increase following AMC’s latest move.
After all, three analysts have issued positive commentary following the move. Two analysts have assigned a $20 price target on AMC stock, which suggests 17% upside. Wedbush’s Michael Pachter assigned a $25 price target on AMC stock on Thursday. If it comes to fruition, it would represent almost 50% upside from current levels.
For what it’s worth, the average price target over the past 90 days shakes out to about $23.50, suggesting more than 36% upside from current levels. The question is, will AMC stock get there and can management deliver?
The company is hitting record quarterly revenue marks in admissions, food and beverage, and other. Average ticket prices are up 5.5% in the U.S. and almost 25% internationally. Don’t forget, AMC has a $100 million buyback in place (about half of it has been used) and the market cap is currently just $860 million. Finally, shares yield about 4.8%.
Trading AMC Stock
Like the chart, let’s keep this short and sweet. $16 is a significant level. Now over it, AMC stock is back to levels it previous topped out at in April. Should it continue higher, perhaps it will hit $19.
If I am buying AMC, I would prefer a pullback to the $16 area, although I don’t know if we’ll get it. If it does, support should hold up, as all three major moving averages rest just below this mark, level support is there (black line) and trend-line support is there well (purple line).
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell was long AAPL.