While most big companies tossed all their product into one streaming basket, AMC Networks (NASDAQ:AMCX) chose a different route.
The strategy is to use the old cable model, multiple channels narrowly targeted. AMC Networks – not to be confused with AMC Theaters (NYSE:AMC) – ended the year with five different streaming services. They are Acorn TV, Shudder, Sundance Now, AllBlk, and AMC+, the last of which is a new bundled service.
Instead of selling the services directly to consumers, the company operates streaming through distributors. These include cable operators like Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T), satellite providers like DISH Network (NASDAQ:DISH), and cable stick players like Roku (NASDAQ:ROKU), Apple (NASDAQ:AAPL) and Amazon.Com (NASDAQ:AMZN). This lets it sell to consumers without a dedicated infrastructure.
The strategy is working great with investors. The stock has doubled in value since 2021 began. It opened March 11 at more than $71 and a market cap of $3 billion, roughly equal to 2020’s revenue.
How It Works
AMC Networks is best known for its series The Walking Dead, although the cable channel was also the original home for Mad Men. During the last decade it added other niche cable services like BBC America, IFC and SundanceTV.
To look at its financials, you might wonder what the excitement is about. For all of 2020 the company earned $240 million, $4.64 per share fully diluted, on revenue of $2.81 billion. All these figures were lower than the net income of $380 million, $6.67 per share fully diluted, on revenue of $3.06 billion from 2019.
Instead, bulls focused on the apparent success of the company’s streaming strategy, which is to work through distribution networks created by other companies. AMC Networks ended the year with 6 million streaming subscribers. The bundled AMC+ offering launched on cable, satellite and stick platforms during the year. AMC is also licensing product to ad-supported video on demand and streaming channels like ViacomCBS’ (NASDAQ:VIAC) Pluto TV, DISH Networks’ Sling TV, and TV-based streaming from Samsung (OTCMKTS:SSNLF) and privately-held Vizio.
The Short Squeeze on AMCX Stock
In addition to being helped by streaming hopes, AMC Networks stock is also being helped by short sellers. This is the same force helping stock in the theater chain to big gains.
Shorts are concerned about what management called “mark-to-market gains on investments” during the fourth quarter. This pushed fourth quarter net income higher. Almost 8 million shares were being held short at the end of February. Short interest peaked, however, in November at more than 18 million. There are about 30 million shares outstanding.
Beyond the short squeeze, analysts are skeptical. Tipranks has six analysts following the stock and just one says buy it. The average price target is 20% below where it opened for trade March 11. The one bull sees it hitting $99/share in a year.
Despite these concerns, the fourth-quarter numbers were well ahead of analyst estimates. The stock rallied after they came out.
The Bottom Line
AMC’s unique streaming model is intriguing but leaves it at the mercy of its re-sellers just as it was at the mercy of cable operators.
Still, the re-seller model let AMC break up its programming into multiple offerings, at prices low enough to attract younger, cash-strapped viewers. AMC thinks it can get to 25 million paid subscribers by the end of 2025 . As more consumers drop cable subscriptions, this looks possible.
AMC will never be more than a niche player in streaming, but its relative success offers intriguing lessons for all the others. Sometimes it’s a good thing to be a minnow rather than a shark. This may be one of those times.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN, AAPL and T.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.