What a day it’s been for investors in AMC Entertainment (NYSE:AMC). Whether investors are self-proclaimed “apes,” or in this movie theater chain for its perceived value, doesn’t really matter. AMC stock is getting hit hard by the market once again today.
In today’s session, AMC stock lost around 10% as of this afternoon. Notably, this move comes following a big announcement from the movie theater company.
Yesterday, AMC announced that a historic deal has been reached between the cinema chain and streaming giant Netflix (NASDAQ:NFLX). This agreement will provide moviegoers with the opportunity to see the upcoming Netflix original movie “Glass Onion: A Knives Out Mystery,” in theaters.
Interestingly, many may have expected this massive show of collaboration between the traditional and contemporary entertainment businesses as a good thing. After all, Netflix has long been called out as a key competitive threat to AMC and its peers. Folks want entertainment at a more cost-effective price, and without the commute and expensive snacks.
That said, let’s dive into why investors appear to be growing bearish on AMC stock following this news.
AMC Stock Plunges Following Big Netflix Deal
Some of today’s trepidation when it comes to AMC may be tied to the price tag the theater paid for these movie rights. Reportedly, AMC will pay $450 million for the rights to play this one movie in its theaters. Overall, it appears this rights sale may benefit Netflix more than AMC, with consumers able to later watch the movie on the streaming app. Meanwhile, Netflix will reap the majority of the benefits of this movie release in the form of marketing.
It’s unclear how well this sequel will do in theaters. The original only grossed $311 million worldwide and AMC has already paid more than that for the rights to the sequel. Accordingly, the traditional model of cinema chains paying big fees to content producers to show films may be the crux of the worry with AMC stock today. Content may indeed be king, and Netflix is capitalizing on its ability to produce hot content. For AMC, the question is whether foot traffic will surge to new highs, or start to dwindle once again.
From a fundamental standpoint, AMC stock still looks expensive at these levels. This is a company that’s still burdened by debt. And while CEO Adam Aron has done some intriguing things to raise capital via equity markets during boom times, it may be too little too late. We’ll see how this plays out. But for now, I’m happy to watch this whole debacle from the sidelines.
On the date of publication, Chris MacDonald 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.