A quick glimpse at the “temporarily closed” sign adorning the local theaters in many towns across the United States is all it takes to get a handle on how cinemas have fared since the onset of the COVID-19 pandemic.
Though there are a handful of states where social distancing and mask requirements have been eased or outright lifted and several theaters have resumed operations with limited capacity seating, the majority of cinemas in the U.S. remain closed —many after temporarily re-opening when infections rates turned down, only to quickly closeup shop again when most people chose to maintain a more cautious approach to social gatherings.
So, it is no surprise that AMC Entertainment Holdings Inc. [NYSE:AMC] yesterday reported a $4.6 billion net loss for 2020 due to the pandemic. Nonetheless, the company, like many speculative traders, is betting on a major turnaround.
“Remember that movie theaters are not sports stadiums or Broadway theaters that routinely are sold out. We’re more like churches, built for Easter Sunday,” AMC’s CEO Adam Aron told a journalist in an on-air interview yesterday, following the release of the company’s first quarter earnings.
After the reopening of AMC theaters in New York City at 25% capacity this past Friday, the theater chain has now re-opened 527 of the 589 venues it owns in the U.S., and roughly 20% of its international locations. And despite the limited capacity, Aron is optimistic that the chain will make a major rebound throughout 2021, particularly as the number of vaccinations within the U.S. continues to ramp up.
“In 2019, pre-pandemic, AMC, that sold more movie theater tickets than any other movie entity on the planet, only sold 17% of our available capacity,” said Aron, adding that while more than 50% of movie theaters in the U.S. remain closed, with close to 90% of its locations open,
AMC’s Adam Aron predicting movie boom this summer
AMC has roughly twice as many theaters open as the remainder of the industry combined. In fact, he predicts that theaters will experience an outright boom between Memorial Day and Fourth of July weekend, as he expects that the majority of Americans will have been vaccinated by then and are likely to flock to theaters as Hollywood starts releasing the backlog of blockbuster films that were delayed because of the pandemic.
Optimism about a return to normalcy, where going out to a movie has long been one of the most popular social activities, second only to going out to dinner, was also a major driver in traders bidding up AMC’s stock price by 525% in January on the commission-free trading platform Robinhood.
Having fallen to a 12-month low of $1.91 on January 5, the efforts of Robinhood traders sent the stock soaring to a 52 week high of $20.36 on January 27. Since then, however, the stock has retreated, closing at $9.85 following its fourth quarter earnings news yesterday. Comparatively, the stocks of two of the company’s biggest competitors, Canada-based Cineplex Inc. [TSE:CGX.TO] and Cinemark Holdings Inc. [NYSE:CNK] closed yesterday at $20.36 and $24.48, respectively.
Still, many investors remain optimistic that AMC is a good long-term bet and will continue to rise once there is a return to some semblance of normalcy and social distancing concerns finally diminish. Such confidence is bolstered by AMC’s ability to raise $917 million of investment capital in 2020 to help shore up its financial position in the wake of the pandemic, through the combination of a renegotiation of its debt and issuance of equity.
But such confidence may be misplaced. While widespread vaccinations and the release of long-awaited high-profile movies such as “A Quiet Place Part II” and “Top Gun: Maverick” will no doubt promote a return to in-theater movie viewing, investors should not overlook the long-term impact the pandemic is expected to have on people’s movie viewing habits as movie studios embraced direct to streaming movie releases over the past year —a practice that is not expected to entirely disappear.
Such skepticism, coupled with what Lightshed Partners analyst Richard Greenfield described as AMC’s “over-levered capital structure,” led the analyst to release a 12-month target stock price of just $0.01 following its earnings release yesterday.