Sit back, grab some popcorn and pay attention to the news coming out of the entertainment world. Investors who did that today likely noticed a major downward move in AMC Entertainment (NYSE:AMC) and its movie theater peers. Unfortunately for AMC stock, Thursday did not bring a happy ending. Instead, shares closed lower by nearly 16% on the back of a lot of bad news.
There really has not been much good news for AMC Entertainment this year. The novel coronavirus massively disrupted the entire industry. It delayed major film releases, slowed down production and kept movie theater doors closed. Even now that things are picking back up, demand is low thanks to the novel coronavirus and safety concerns. Plus, in the absence of blockbuster premiers, many consumers turned to streaming options. So did the movie makers.
For AMC stock, this means that 2020 has brought a pretty ugly decline. Year to date, shares are down nearly 50%. And while there is some hope that a reopening will return AMC Entertainment and its peers to their former glory, the rise of streaming is looking to be permanent.
With that backdrop, why did AMC stock drop so hard on Thursday? Well, the first answer to that question comes from news the company plans to offer 200 million shares to keep itself afloat. According to the announcement, AMC is looking to offer 200 million shares at $4.22 each. Such a move could raise as much as $844 million for the company. But after AMC stock fell 16% to $3.63 today, the cash-raising plan just may not work out.
Simply put, investors do not like to see companies that are desperate for cash. That makes sense then that the public offering would weigh the company down so much. However, there is another big weight bringing down shares.
Warner Bros Pressures AMC Stock
Today, WarnerMedia announced it was taking a hybrid approach to movie releases in 2021. While it may be a good idea for the company, especially as 81% of Americans have avoided movie theaters since March, it spells trouble for AMC Entertainment. Essentially, concurrent with the film release period, Warner Bros. will launch a one-month exclusive access period on its HBO Max streaming platform. After that period, films will continue on to domestic and international movie theaters as usual.
Well, that was a huge blow for AMC stock. It shows that movie makers and consumers can get used to an entertainment world without theaters. Granted, we already got a taste of this earlier this year. Disney (NYSE:DIS) found some success releasing its Mulan straight to streaming. As more companies look to do this, movie theaters are in trouble.
What does this mean? Investors should be very careful with AMC stock here. It is hard to tell just what a post-pandemic reality will bring for movie theaters, and how much demand will return. Perhaps consumers will be eager to go back to something from pre-pandemic days. But certainly, there is a very real risk that Warner Bros. is simply leading the way in this hybrid approach.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.