The Covid-19 pandemic has been tough on many stocks, but it seems to have hit many entertainment stocks particularly hard. Several entertainment business bigwigs have been forced to reimagine their business models and strategies.
Businesses providing in-person entertainment continue to bear the brunt of the pandemic’s onslaught. On the flip side, entertainment companies with a purely online services model have had one of their best years of late. Therefore, many of the in-person entertainment stocks struggle to stay afloat and are likely to keep struggling for the better part of 2021.
Lockdown restrictions and social distancing measures are two catch-words that have caught up this year, directly impacting the entertainment business. Unemployment levels have soared throughout the year, reaching an unprecedented 14.7% back in April.
Naturally, these numbers have had a direct impact on consumption and savings. People have had more important things to worry about, such as rent and household expenditures instead of leisure. Though most of these changes are temporary, many of the catch-words this year will have a long-term impact on consumption patterns.
With that being said, let’s look at three entertainment stocks that are in for a torrid 2021.
Entertainment Stocks to Sell: SeaWorld Entertainment (SEAS)
SeaWorld Entertainment is an Orlando-based theme park and entertainment company. Its amusement parks were once among the most visited in the USA.
The company has it incredibly tough during the pandemic, with a whopping 95.6% reduction in its second-quarter revenues. Moreover, despite managing its cash burn effectively, SeaWorld’s massive debt load will weigh its potential recovery in 2021. Therefore, SEAS stock is one of the most volatile investments in the sector at this time.
Earnings were lackluster throughout the year, with double-digit reductions in revenues in each of the past three quarters. In its third quarter, revenues were down 77.6% compared to the same period last year, with its loss per share at 99 cents.
The company’s major problem is its debt, as it issued $727.5 million in loan notes this year carrying high-interest rates. Hence, its net income is likely to take a massive hit in the coming year, unless there is a massive increase in its revenues.
AMC Entertainment Holdings (AMC)
AMC Entertainment operates one of the largest movie theatre chains in the U.S. With lockdown restrictions and no major movie releases this year, AMC stock has taken a hammering.
Its six-month return is -43%. With its growing cash burn and rising debt load, the stock is one of the sector’s worst investments.
The company is currently burning roughly $125 million a month and would need an estimated $750 million in additional liquidity next year.
It is issuing new debt at high-interest rates and using at-the-market equity offerings to ensure it doesn’t go bankrupt. Revenues were down almost 91% in its most recent quarter, and it needs a massive recovery to stay afloat next year.
At this point, it seems unlikely considering the massive growth of streaming platforms and joint release of films online and in theatres.
IMAX Corporation (IMAX)
IMAX Corporation is an entertainment technology company that provides theater architecture, equipment, proprietary software, and other cinematic solutions.
With the uncertainty surrounding the health of theatres, the going has been tough for IMAX. Its second-quarter was particularly tough, with revenues tanking 91.6%. The uncertainty surrounding consumer behavior and the growing importance of streaming services make IMAX a risky proposition.
It recently reported its third-quarter results, where its revenues were down by roughly 57%. Its net loss also widened from 44 cents to 75 cents.
The company’s outlook is directly dependent upon the financial performance of movie theatres. Moreover, major studios such as HBO have announced same-day releases on its streaming platform for several top movies in 2021. Hence, such a step-change in the industry makes IMAX stock a volatile investment.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
