Key learning points
- AMC became a popular investment as a meme stock, resulting in incredible volatility.
- There are signs that AMC is on the right track, with people returning to movie theaters and the company making more per customer than it did before the pandemic.
- AMC has many obstacles to overcome, especially the rising popularity of streaming.
AMC shares have been on a roller coaster for more than a year. The company was on the verge of bankruptcy, but survived the pandemic thanks to – tada! – equity investors.
However, should you invest your hard-earned money in AMC? Or is that time over now?
AMC Share in the news
On November 21, 2022, AMC’s stock price fell below $8 per share. This is a significant loss from the price of over $41 a year ago. The theater chain reported a loss of $0.22 per share for a total loss of $226.9 million in its third-quarter results release for fiscal year 2022.
This stock has had its fair share of volatility and a stock split that has also lost value since the end of August 2022.
The stock split, known by the ticker APE or AMC Preferred Equity stock, pays homage to traders on Reddit who call themselves monkeys. Retailers helped save the theater chain by buying and boosting its share price to avoid bankruptcy amid the pandemic.
Private investors turned AMC into a meme stock the same way they turned Gamestop into a meme stock. Their reason for investing in AMC was a combination of nostalgia, a desire not to see the chain dismantled by bankruptcy, and an effort to hold the wealthy accountable.
Many of these investors were millennials who fondly remember going to AMC movie theaters as kids to watch movies. They fight against the loss of their favorite movie chain by buying up shares en masse.
In addition, hedge funds, investments in which many wealthy people invest, have shorted AMC stock. This means that the hedge fund has made an investment that will make money when a stock loses value.
These funds believed that AMC stock was trading for more than the company was worth. When private investors pushed the share price higher, hedge funds that made the investment for a lower share price had to buy shares to cover their short position, resulting in losses.
AMC’s CEO Adam Aron has publicly thanked retail shareholders for helping to save the company as it raised $2.2 billion in equity. The company is now positioned to move forward and expects gradual growth in 2023 and 2024.
The APE security was launched as another way to raise capital, but Aron views the security as a way to build equity slowly and doesn’t expect it to see rapid growth.
AMC audit of the income statement
AMC reported year-to-date total revenues of $2.9 billion for the third quarter of fiscal 2022, of which $1.6 billion came from admissions, $982.5 million from food and beverage, and $297. 9 million generated by other theater revenue.
The chain had total sales of $2.5 billion for all of 2021. Operating costs and expenses included $781.7 million in movie screening costs, $165.7 million in food and beverage costs, $1.1 billion in operating expenses and $668 .8 million in rent.
It reported a net loss of $685.9 million for the nine months of 2022, compared to a net loss of $1.1 billion for the same period a year ago. For the third quarter of 2022, AMC reported a net loss of $226.9 million.
AMC balance sheet review
AMC reported cash and cash equivalents of $684.6 million at the end of the third quarter. It has $125.7 million in other non-current liabilities and $56.2 million in finance lease obligations.
Free cash flow is $278.1 million negative for the third quarter.
AMC stock outlet moving forward
Obviously, AMC’s stock has taken a beating, but that only tells part of the theater chain’s story. In 2019, the company had $265 million in cash and was able to increase that amount to $308.3 million in 2020 despite the pandemic.
The company’s cash reserves skyrocketed to $1.59 billion, before falling to $684.6 million in the third quarter of 2022. .
AMC is still overcoming the impact of the pandemic lockdowns in 2020 and 2021. It recently restructured its debt, moving the maturity date to 2027 while reducing the amount of outstanding debt. This will help to return to profitability in the years to come.
The good news is that attendance is returning. Before the pandemic, global visitor numbers reached 264.8 billion in 2018 during the first nine months of the year and 263.8 billion in 2019. For the same period in 2022, the number of visitors reached 151.3 billion.
As countries continue to ease lockdowns, this number should continue to increase.
Another positive sign for AMC is higher ticket prices. In 2019, the average ticket price was $9.19 for the first nine months of the year. For the same period in 2022, the average ticket price rose to $10.83.
AMC also saw increases in the amount people spend on concessions. In the first nine months of 2019, average food and beverage revenue per customer was $4.86, compared to $6.49 for the same period in 2022. All this comes with fewer screens showing AMC movies.
However, the other critical factor for AMC is the release of new movies. Many movie studios make deals with streaming services to release new movies on these platforms. Sometimes studios bypass theatrical releases entirely, which could affect AMC’s profitability.
it comes down to
AMC’s stock may never reach the same heights it did during the peak meme stock period, but it’s still a viable business as people want to go to movie theaters to watch movies. This has been proven over the decades as moviegoers want the experience of seeing a movie on the big screen to get a sense of involvement that TV, computers and tablets can’t match.
The entire stock market has taken blow after blow as a result of various economic forces and an increase in the federal funds rate. AMC’s share price loss is in line with what the rest of the stock market is experiencing.
This stock is likely worth buying for a long-term hold, as the CEO is optimistic about the future and has tentative plans to improve the chain to provide more value to moviegoers and shareholders alike.
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