AMC Theaters Are Nearly Out Of Business?
AMC's stock plunged by 80% since the beginning of the year and experts are worried the theater giant won't rebound before it runs out of capital due to a lackluster movie lineup.
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Pop some popcorn and get ready to closely watch the financial performance of the world’s largest movie theater company. Investors and shareholders for AMC Theaters got brutal news yesterday when the stock market closed. Its dismal numbers have analysts questioning the viability of the company overall.
When the market closed on Wednesday, AMC Theaters’ stock landed at under $6 per share. That is an 80% drop this year, which has sparked serious concerns. So, what exactly is going on with the massive company?
The answer is a little complicated but essentially hinges on some distinct factors. According to an MKM Partners media and entertainment analyst, Eric Handler, the poor stock performance is “purely about the capital structure.” He even suggests the stock is overvalued as it is.
Before the pandemic, AMC Theaters acquired multiple small theater companies. They borrowed money to upgrade the screens and seating at many of these newly acquired locations. It resulted in $5 billion of debt, which is more than double its market value.
When the pandemic hit, the company went into Covid restrictions with a substantial debt burden already hanging over its head. That made it extremely difficult to achieve any profit at all. Things got bad enough financially that the theater giant barely avoided bankruptcy in 2021.
The only thing that saved them from going over the edge was the help of millions of retail investors. AMC Theaters executives released news of multiple schemes to raise additional capital and pay down the massive debt. Then mid-year, its executives sold off a slew of shares when the stock was at its highest level.
Alicia Reese is an analyst at Wedbush. She told CNBC that she attributes the downward spiral the stock has experienced to this move. And a second sell-off that occurred in August did not help matters.
An additional factor negatively impacting AMC Theaters’ ability to raise capital is the news out of Hollywood. Film production levels have not increased enough post-Covid. So, this has resulted in fewer blockbuster-style movies hitting theaters.
Typically the end of the year and the holiday season see a rush of blockbuster movie releases. It encourages movie-goers to head to theaters. But this year, that just is not happening.
There are only four potential blockbusters getting released over the next few months. In comparison, 2019 saw roughly two-dozen blockbuster-type movies hit the theater in the same time frame. Unfortunately, there isn’t enough to bring consumers through the doors.
Thankfully, Hollywood is finally starting to ramp up its production again. Analysts expect the 2023 season to bring in $9.5 billion in estimated ticket sales. But that is still nearly $2 billion shy of total 2019 ticket sales.
In the meantime, AMC Theaters does have enough liquidity to keep the doors open for a little longer. Handler said, “I think they can limp along for many years with their current balance sheet.” That is thanks to the roughly $1.17 billion the company has available, which may help them hold out until the movies start rolling in again.
