AMC Entertainment (NYSE:AMC) faces liquidity challenges, which the previous industry strikes and seasonal vulnerability have exacerbated. Given the fixed cost structure for AMC stock and still high operational costs, profitability will likely be impacted during periods of low revenue. This seasonal fluctuation affects both liquidity and AMC’s overall financial health.
Despite hopes for profitability by 2024 or 2025, lingering uncertainties affect the movie theater industry’s recovery. Despite efforts to reduce debt, AMC faces challenges with high debt levels and increased servicing costs, impacting profitability and warranting caution.
Here’s more on why I think AMC isn’t worth investing in right now.
Wall Street Is Unimpressed with AMC’s Q3 Report
AMC Entertainment exceeded Q3 revenue expectations, reaching $1.41 billion, representing 45.2% year-over-year growth. This unexpected surge was fueled by higher contribution per patron and a 38.4% increase in theater attendance. Earnings per share came in at 8 cents, surpassing last year’s loss and beating analyst projections.
AMC reported positive net income for the second consecutive quarter, concluding with $730 million in cash, signaling recovery from COVID-19’s impact. CEO Adam Aron credited innovative marketing, pricing strategies, and strategic theater closures for the positive outcome.
However, despite a promising quarter, AMC’s CEO highlighted challenges, including potential impacts from ongoing strikes and a 16% decline in domestic box office attendance compared to 2019. AMC’s Q3 results, while amidst a challenging year, hint at a potential turnaround.
Shares Still Fell Despite Excellent Q3
Despite record quarterly earnings, AMC shares tumbled on November 9 as the theater chain filed with the SEC to sell up to $350 million of stock. The move, offsetting positive financials, led to a nearly 12% decline in the stock, causing concerns among retail investors.
According to the filing, AMC shares declined by 10% to $9.08 as the company disclosed its intention to utilize the net proceeds from the Class A common stock offering to enhance liquidity, address existing indebtedness, and for general corporate purposes.
AMC’s recent stock filing is a recurring move, following a September announcement to sell up to 40 million class A common stock shares. The ongoing stock sales aim to address pre-pandemic and pandemic-induced debts, prompting a reverse 1-for-10 stock split to facilitate further sales.
Avoid AMC Now
AMC confronts fierce competition and waning customer allegiance in an industry transformed by streaming platforms and home entertainment. Despite robust revenue growth in 2021 and 2022 due to pent-up demand, AMC struggles to differentiate itself, impacting its 2023 revenue amid economic uncertainties.
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.
