What the Future of AMC Theaters Looks Like

I think most of us have gone to an AMC Theaters in our life. For some of us, they’re our main movie theater. They’re probably the most popular movie theater chain in the US, and even own a bunch of smaller theaters (Odeon, Starplex, MegaStar, etc). People often complain about how expensive it is to go to the theater nowadays. This is due to the fact that movie theaters hardly make any money on ticket sales. The studios that own the films are the ones that determine what percentage of the film’s revenue it’s able to keep, leaving movie theaters with little power of their ticket earnings. This is why the concessions at movie theaters are often so expensive.

To combat these issues, AMC introduced “AMC A-List” last year and it’s done really well so far. As of now, the company has over 800,000 subscribers to A-List, well above its 500,000 subscriber goal. A-List is a subscription to AMC Theaters that lets you see up to three movies a week for around $22 a month. If you see more than one movie, you’re more than likely already making back the money you spent on the subscription. It’s done really well for AMC and is the major thing that makes them stand out from similar movie theater chains.

Even though there’s most likely an AMC Theaters in your area, the company isn’t necessarily doing well. July 4th saw the lowest that AMC Entertainment Holdings, Inc. has been priced on the NYSE, coming in at $9.10 per share. Investors aren’t too thrilled with AMC. They have debt, and analysts predict they’ll have a financial loss in 2019, before possibly becoming profitable in 2020. This leads us to the question: What does the future of AMC look like? 

As mentioned earlier, A-List has really helped out AMC. CEO Adam Aron spoke highly of the service when he released the following statement:

“With AMC Stubs A-List, we believe we’ve cracked the code to make this concept successful for AMC, our shareholders, our studio partners and most importantly, our guests. While others have tried and failed in this space, A-List is only getting stronger. Members are seeing many more movies than they did before A-List was created, they are seeing movies more than once and they’re bringing their friends and family members along, who are paying for their tickets at full price.”

 

One of the main appeals of A-List for AMC is the fact that customers will be coming to the theaters more, and in turn, buying more concessions. With A-List, AMC has filled almost 20 million seats that would have otherwise gone empty. That’s impressive. I actually have A-List myself (highly recommend) and this works on me. Because I essentially see movies for free after my first two (not really, just how I see it in my mind) I don’t really mind paying for some food. It’s a really smart business model, and I think more and more people are going to sign up. I tell everyone I go to movies with to get A-List. It’s genuinely awesome.

AMC also just launched AMC Artisan Films, which will seek to give select films earlier runs in limited release, and keeping these films in theaters for a longer period of time. It’s a nice move, and I can see this being a modestly positive thing for AMC. However, this won’t really affect them much. The market for smaller, artistic films isn’t as large as the market for blockbusters like Avengers: Endgame or Spider-Man: Far From Home, and therefore the income most likely won’t be too high.

Most of the issues with AMC come down to its financials. To start, this has not been a good summer for movies. There have been a lot of flops, and theater attendance overall is down. Last year, AMC theaters reported negative free cash flow. This isn’t the best sign. Even though they’re having a tough financial year, AMC is still paying out dividends of their earnings. For some reason, AMC’s stock price has gone down since the launch of A-List. Since launching the service, the company’s stock has shed about 32% of its value. It’s concerning to many that AMC paid out dividends while also not having positive cash flow. This is really unique in the market, and it has many analysts confused.

Earnings per share have also been in the decline recently for AMC. One way to figure out a company’s financial situation is to take dept divided by EBITDA (earnings before interest, tax, depreciation, and amortisation). When we analyze this for AMC, we see that AMC has a debt to EBITDA ratio of more than 10x. This debt isn’t the end of the world, but it is something that could cause problems for the company down the road.

One thing that can’t be underestimated is the demand for in-home entertainment in the future. I think more and more people are choosing to watch films at home rather than go to the theater. Services like Netflix, Hulu, Amazon, and (within the next few months) Disney+. People are able to nearly recreate the type of environment a movie theater gives but within their own home. I don’t think the movie theater industry is in any real trouble, but AMC is already in a shaky spot right now. People can only consume so much content, whether that be at the theater or at home. It’s definitely something to keep an eye out for.

Overall, AMC is another one of those companies where it’s really a toss up on whether you should invest or not. Their stock price is really low right now, and among 6 analysts covering AMC Entertainment, 4 have it at a buy rating, with two saying you should hold. This means that 67% of them are positive, which of course is a good sign. A-List has seen tremendous growth for the company in terms of customers and revenue, but its stock price has still fallen since the launch of the program. AMC Entertainment Holdings is a pretty low-risk, low-reward company. They’re the leader in the movie theater industry in the US, and a well-recognized brand. Now that you know the situation, you can figure out if they’re worth your money or not!

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