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The U.S. week ahead: The show must go on

Among the thick crowd of companies awaiting to announce earnings in the week ahead, AMC Entertainment Holdings is set to deliver its results for the first three months of 2019.

The Kansas-based exhibitor continues to contend with competition headwinds from the disruption of streaming video services such as Netflix (NASDAQ: NFLX) and Amazon Prime (NASDAQ: AMZN), as well as amid intensified rivalry in the direct-video delivery space.

Netflix, for example, tacked on a record 9.6 million global paid memberships during Q1’19, with roughly 17.7% domestic customers and 82.3% international subscribers.

Dave Novosel, a senior analyst at corporate bond research service firm Gimme Credit, noted that Netflix’s outlook for the seasonally weaker second quarter is “not as impressive.”

The company has targeted paid net adds of 5 million, comprising 300k U.S. subscribers and 4.7 million overseas customers.

Novosel continued that the “skew reflects the impact of price changes that will be rolled out in the U.S.,” but for now “the figure most critical to bond investors – free cash flow” – was a negative US$440m in Q2, as most of the cash burn is associated with “enormous spending on content.”

Netflix still expects to generate much better FCF in 2020, as it becomes self-funding. However, competition in the video on-demand business has been recently heating up.

The Walt Disney Company, for instance, has been recently touting its November 12 launch of Disney+ at US$6.99 a month compared with Netflix’s Standard plan, which is offered at a monthly rate of US$12.99 – up 18% since around the start of January.

Disney chair and CEO Robert Iger highlighted that Disney+ would present content from the company’s “iconic entertainment brands,” including Disney, Pixar, Marvel, Star Wars, and National Geographic, and will be available on connected TV and mobile devices.

Disney, along with its rival Comcast Corp, are also the remaining owners of video streaming service Hulu, after telecom giant AT&T recently divested its interests for US$1.43bn, aiming instead to use the proceeds from the sale to reduce debt.

Analysts at Finimize noted that initially, Disney+ will most likely have “significantly fewer hours of content than Netflix. But as Disney churns out more of its exclusive Marvel, Pixar, and Star Wars content – and potentially bundles in Hulu shows to boot – customers may eventually change channels.”

At the Movies

Against this backdrop, traditional movie theater-goers continue to flock to the theaters, albeit attendance has been erratic over Q1’2019.

While films such as Glass and Captain Marvel helped boost gross revenues in January and March, respectively, box office receipts faltered by over 46% in February to US$603.3m.

In the full year 2018, AMC said the U.S. industry box office was up 6.9% to US$11.9bn, marking the highest grossing year on record, with February, April, June, and October setting all-time monthly records.

However, internationally, the industry box office in countries served by Odeon and Nordic’s theatres witnessed a 5.2% decline and a 1.6% increase, respectively. AMC attributed the declines across Europe to “underperforming Hollywood titles, weak local product, and competing viewership from the FIFA World Cup.”

AMC’s stock has soared a little more than 34.8% since its latest 52-week low set in late December 2018, nearly erasing its 39.61% plunge from the late September-December 2018 period. The equity has also moved away from its overbought status of over 74.67 to around 58.18, according to the Relative Strength Index (RSI) on the IBKR Trader Workstation.

Meanwhile, the exhibitor has been luring customers via discount programs, namely the A-List VIP tier of its Stubs loyalty program, which has attracted more than 700,000 subscribers since its launch in June 2018, far more than expected.

AMC expects to generate more than US$150m of annual recurring revenue and, based on historical performance, in excess of US$300m when factoring in food and beverage purchases, as well as full fare tickets purchased by bring-along guests such as family and friends.

AMC is scheduled to release its Q1’2019 earnings results Wednesday, April 24, alongside AT&T before the market opens.

The week ahead will also be rife with a long list of economic releases, including new home sales, durable goods, GDP, Core PCE prices and the University of Michigan’s survey of consumer sentiment. Tesla will also be hosting its Autonomy Investor Day Monday and releasing its financial results Wednesday after the market closes, along with Facebook and Microsoft.

The analysis in this material is provided by Interactive Brokers for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by Interactive Brokers to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Steven Levine

Steven Levine

Steven Levine is a Senior Market Analyst at Interactive Brokers, (IBKR), which provides online trade execution and clearing services to institutional, professional and individual investors for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide.

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