AMC Entertainment Continues To Be a Complete Mess

Retail traders are banking on another short squeeze and a rebound in the pandemic lows of AMC Entertainment (NYSE:AMC) stock.

Image of the entrance of an AMC Entertainment (AMC) branded theater. undervalued stocks
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Though a possibility of a short squeeze still exists, a recovery in attendance returning fully to pre-pandemic levels seems unlikely for the foreseeable future. On top of that, the company’s enormous debt load and worsening cash position will continue weighing in on AMC stock.

The bulls put forth the argument that movie attendance would return above pre-pandemic levels as soon as the movie theaters reopened. However, that hasn’t been the case so far, which naturally doesn’t justify AMC’s inflated price.

Movie attendance improved significantly in October to roughly 80% of 2019 levels but stumbled slightly to 70% in November. Moreover, with Covid-19 pandemic continuing, recovery is likely to hit the ceiling.

Attendance Levels

AMC reported attendance during its third quarter was down 54% to 40 million compared to 87.1 million it reported in the same quarter last year. Moreover, its revenues also dropped 45% during the third quarter this year. Sales came in better than attendance due to higher ticket prices and healthier food and beverage revenues per customer.

Furthermore, it appears that the recovery hit a ceiling during the fourth quarter. According to Box Office Mojo, domestic box office receipts were down 20% in October on a year-over-year basis. In November, the domestic box office is down an additional 10% over October. AMC aimed for attendance levels to be at 90% of pre-pandemic levels during the fourth quarter, but the results may come in at just 70%.

The competition from OTT platforms and the impact of Covid-19 continues has played a huge role in impacting movie attendance. The impact of streaming will probably have a more long-lasting impact on the movie theater business, the effects of which have already become apparent.

Massive Cash Burn

AMC’s outstanding share count has gone over fivefold since the start of the pandemic. Its board has been flirting with its authorized share allotment for several months now, which suggests that selling more stock may not be an option in raising cash.

However, the issue with AMC is that despite its healthy liquidity of over $1.8 billion, it continues to burn cash at an aggressive pace. During the third quarter, its liquidity shrank by close to 10%, with its cash position dropping by close to $200 million.

During the first nine months of the year, its cash outflow was $714.5 million. Moreover, it also has $376 million in rent arrears due to the pandemic. AMC will have to catch up to these payments with its dwindling cash balance. Therefore, its liquidity could disappear quickly in the upcoming quarters.

Another sad reality for the retail traders is that AMC’s bargaining power is eroding at a fast pace.

It recently signed an agreement for 45-day theater exclusivity with Warner Brothers.  Though it may be a win for some, AMC used to garner at least 75 days of exclusivity before the pandemic. To complicate things, inflation-adjusted domestic box office numbers have declined by 22% from 2002 and 2019.  AMC offset a bit of this drop with higher ticket prices, but it doesn’t take away from the fact that fewer people are looking to head to the theaters.

Bottom Line on AMC Stock

AMC stock has been a retail trading favorite, and the Redditors are looking forward to another short squeeze. However, AMC continues to disappoint with its attendance numbers and fundamentals with every passing quarter.

The future looks bleak with the state of the pandemic and the rise of streaming. Hence, AMC stock is a no-no.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines


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