Will the economy reopening and a slate of blockbuster movies be enough to save embattled theatre chain AMC (NYSE:AMC)? The Leawood, Kansas-based company has been in operation since 1920 and is today the largest movie theatre chain in the world with nearly 1,000 locations and 10,833 screens. AMC stock has been a basket case since the global pandemic forced the company to shutdown 14 months ago.
Over the past year, AMC has narrowly averted bankruptcy and AMC stock price has fallen 75% to a low of $1.91 a share.
Even with the economic recovery gathering steam, many analysts are sounding the death knell for AMC. One analyst has a price target on AMC stock of $0.01.
A Shifting Operating Environment
The reason for pessimism has to do with, what analysts say, is an operating environment that has fundamentally changed during the pandemic. With movie theatres shuttered and people sheltering-in-place at home, streaming services such as Disney’s (NYSE:DIS) Disney+, Netflix (NASDAQ:NFLX) and Amazon’s (NASDAQ:AMZN) Amazon Prime have seen their businesses explode in popularity. And many movies that were originally scheduled for a theatrical run have now been slated to go directly to a streaming platform, where people can pay a premium to watch the films when first released. This new approach to releasing movies, skeptics say, has doomed theatre chains such as AMC.
For its part, embattled AMC is counting on a slate of blockbuster movies that were delayed by the pandemic to draw people back to theatres this summer. These films include the Marvel tent pole picture Black Widow, as well as highly anticipated sequels to movies such as Top Gun and Suicide Squad. There’s also the latest entry in the Fast and the Furious franchise and a new James Bond film titled No Time To Die.
Whether these movies are enough to entice people back into crowded theatres remains to be seen. Right now, most movie theatres are operating at 50% capacity amid social distancing rules, if they’re open at all. Meanwhile Disney+ signed up more than 100 million subscribers in 16 months.
Reason For Hope?
Despite the dire outlook, there has been some encouraging news on the box office front in recent weeks. The release of the film Godzilla vs. Kong during the first weekend of April had a stronger than expected debut at the global box office. The Warner Bros. produced movie, which received a mixed critical reception, had the best opening weekend for a movie since the Covid-19 pandemic shutdown theatres a year ago, raking in $285.4 million worldwide between Wednesday and Sunday.
Analysts who track box office results noted that Godzilla vs. Kong opened in more than 3,000 theaters throughout North America, the most of any film during the pandemic era. However, even at that level, only a little more than half (55%) of movie theaters in the U.S. and Canada were open to screen the film. And, Godzilla vs. Kong was released simultaneously in movie theatres and on the HBO Max streaming platform. Analysts point to the movie’s box office haul as evidence that there is pent-up demand for people to return to watching films in theatres with other people.
At the same time, as AMC is trying to find its footing in a post-pandemic world where streaming has rapidly ascended, the company’s stock has become a favorite of the traders who congregate on the WallStreetBets Reddit platform. The pessimistic view of AMC stock, and the fact that it has been one of the most shorted stocks on Wall Street, has attracted hordes of retail investors intent on pushing the share price up to unjustified and unsustainable levels.
Between January 14 and 27, AMC stock jumped over 800% to a 52-week high of $20.36 a share. The stock is now trading at less than half that value, down to $9.74 a share. The company’s share price continues to fluctuate wildly, swinging between $5 and $15 as retail investors continue to take periodic runs at it. The volatility has only added to the drama surrounding AMC and its stock, and led many investors to steer clear of it for fear of an eventual crash back down below $5 per share.
Wait A Few Months On AMC Stock
AMC is facing a make or break summer. By August we should know the fate and future direction of AMC and movie theatres in general.
If consumers return to theatres this summer to watch the slate of blockbuster films that are ready to be released, then AMC stock will respond positively and investors can consider taking a position. But should the box office under perform over the next few months, it could cause AMC stock to slump further, maybe to the point of no return. Investors would be smart to wait a few months until the picture with AMC and its shares becomes clearer.
On the date of publication, Joel Baglole held a long position in DIS.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.