Have These 2 Cinema Stocks Bottomed Out?

The world’s biggest movie theater chain and the largest film format company were hit incredibly hard by the pandemic. Have they reached their bottom?

Aug. 10, 2020

Christopher Nolan’s highly anticipated film, ‘Tenet,’ was originally scheduled for U.S. release in mid-July; then it was pushed to the end of July, and now to September. The film, which has many scenes shot in the IMAX (NYSE: IMAX) format, is affecting the business of two companies; the second being AMC (NYSE: AMC), which continues to push theater openings to coincide with the release of the future blockbuster. With coronavirus cases swelling in film mecca Los Angeles and the looming uncertainty about film exhibition, do the two companies have a chance at recovery, let alone posting profits?

All theaters were shuttered shortly after the outbreak and started bleeding money; all except drive-ins, whose ticket sales soared as they played old Hollywood blockbusters like ‘Raiders of the Lost Ark.’ Of course the OTT market prospered with Netflix (NASDAQ: NFLX) adding over 10 million subscribers and Disney+ (NYSE: DIS) numbers surpassing 60 million — which are expected to grow even more when the company releases ‘Mulan’ on its platform in September. Traditional theaters however, remain desperate.

1. AMC

Once the closures became official, AMC furloughed over 98% of its workforce, including all C-suite executives, like CEO Adam Aron; its revenue has also plummeted over 98% from a year ago. Early in June, the company said that it might not survive if it wasn’t allowed to reopen theaters in the summer. The company instituted special measures called ‘AMC Safe & Clean,’ which required masks from all guests, lower capacity at all screenings, and upgraded ventilation systems.

On August 3, AMC concluded a debt-restructuring deal that cut its load by over half a billion dollars and gave it over $400 million in cash and liquidity enhancements, helping it weather the storm well into 2021. Additionally, the company signed a landmark deal with Universal (part of Comcast (NASDAQ: CMCSA)) to allow for new releases to go to Premium Video on Demand (PVOD) platforms after 17 days of screening for 20% of sales; AMC has the final say on which movies it will allow to leave early, ensuring it can make the most out of blockbusters. Other chains criticized AMC for shortening the screening window and will likely not follow suit, allowing AMC to make deals with other distributors and secure more revenue. The company expects all of its U.S. theaters to resume operations by the end of August.

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IMAX, a smaller company than AMC, reported a loss of $26 million compared to an $11.4 million profit a year ago; its revenue took a 92% dive to $8.9 million from $104.8 million in 2019. Theaters are starting to reopen around the world, especially in China, the second-most important film market, but in the U.S., it’s going to take a bit longer as approval depends on individual states. Analysts feel that IMAX has enough cash to survive the outbreak and recapture pre-pandemic profitability if COVID-19 is contained by next year; and with China reopening theaters and accounting for over 30% of the company’s revenues, it looks like IMAX is on track for a steady recovery.

Fortunately, there are enough anticipated movies to keep theaters as packed as they’re allowed to be in the foreseeable future; titles like the aforementioned ‘Tenet,’ ‘Wonder Woman 1984,’ and ‘No Time to Die,’ all partially filmed in the IMAX format, are scheduled to be released by year’s end. Additionally, the company struck a deal with AMC owner Wanda to build 10 new IMAX theaters and upgrade 10 existing ones.

Should you invest in these companies?

In the long term, yes. Cinema is the most popular art-form of the last hundred years and while some patrons may have reservations about returning to the social experience, I feel, from seeing behaviors around me, that for the most part people are dying to leave their homes and interact. From community pools to coffee shops, people are crowding these venues at pre-pandemic levels and it hasn’t let up even from the recent restrictions. People go to the movies for date night and family night and that will not be erased from our collective DNA. IMAX and AMC both recovered from their pandemic lows; as of August 7, their stock prices are up 65% and 92%, respectively.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.