AMC Entertainment (NYSE:AMC) stock had an interesting few trading sessions. The retail crowd sprang into action in the first part of this week after a report came out that institutional short-sellers were again betting against them. However, by Thursday, normal service resumed, with traders taking profits. Where does that leave AMC stock? Not in a great position.
The company’s weakness is its excessive dilution. Management has made hay while the sun shone, growing its outstanding share count fivefold since the start of the pandemic.
Plus, although things are better than at the start of the pandemic, revenues still have much to do. The $785.7 million in revenue it produced in Q1 is good. But it is still 35% below the $1.2 billion in Q1 2019.
Overall, it’s been a hard year for theater owners, with post-pandemic attitudes driving business revenues down. Some moviegoers aren’t going to theaters very much, making sure AMC has an even harder time competing for the Hollywood blockbuster audience. As Alex Sirois points out that one blockbuster like Top Gun: Maverick will only help so much.
|AMC||AMC Entertainment Holdings, Inc.||$11.18|
Attendance Numbers Paint a Bleak Picture
A recent study from Gallup found that movie theaters across the United States saw a significant drop in attendance after the pandemic. This led to many cinemas shutting down, which has had a major impact on the film industry.
The study found that moviegoers were spending more time at home watching movies instead of going to watch them in theaters. This was due to streaming services like Netflix (NASDAQ:NFLX) and Hulu, which provide access for a lower price than what you would pay for tickets at theaters.
Under these circumstances, AMC’s core business is in trouble. In the first quarter, AMC managed to sell 39.1 million movie tickets. This is a substantial drop from the first quarter of 2020, where it sold 60.5 million movie tickets, and Q1 2019, when it sold 79.8 million tickets. AMC Chief Executive Officer Adam Aron believes ticket sales will not return to former numbers until 2025.
There will be pops that might push up ticket sales from time to time. For example, last year, the big winner was Spider-Man: No Way Home. It sold a record 7 million tickets on its opening weekend. This year, Top Gun: Maverick has emerged as a clear winner, alongside Matt Reeves’ The Batman. However, these movies are big tentpole releases and are one-offs. That is not enough to sustain the company’s operations, which is why it ended the first quarter at a loss of $337 million, or 65 cents per share.
Can AMC Stock Sustain Its Price?
Certain initiatives AMC has taken make sense, such as selling its branded popcorn at grocery stores. But AMC’s overarching strategy is probably too broad considering the market and scope of competition. The price per serving for AMC’s popcorn is higher than some other major brands, making it less competitive as an impulse purchase. Nevertheless, it could build an additional revenue stream with this initiative.
However, other investment decisions are a bit more confusing. For example, AMC has purchased a 22% stake in Hycroft (NASDAQ:HYMC), an embattled gold and silver miner. AMC cited its many successes in accessing capital and acting as a financial advisor by itself as the main reason for investing in this project.
At its core, though, the movie theater company is struggling with its operations. You cannot expect that to change overnight, especially considering that streaming is all the rage these days and will continue to chip away at AMC’s business.
AMC Stock Will Continue to Fall
Although Tom Cruise’s Top Gun: Maverick has been an astounding success for AMC, the coming quarter may not match the company’s previous quarterly earnings numbers.
In comparison to GME stock, AMC has not been able to retain much of its gains. Do not expect things to change anytime soon.
On the publication date, Faizan 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.