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Bear Of The Day: AMC Theatre (AMC)

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Movie theaters are treading water in the video streaming economy today that is hitting the media segment like a tidal wave. Analysts are scared for the fighting movie chains, as they pivot their business models. AMC Theatres (AMC - Free Report) just announced that it would be launching its own streaming service to compete in the increasingly saturated space. Analysts don't know if the investment in a streaming service would ever yield positive returns and have pushed their EPS estimates down, dropping AMC to a Zacks Rank #5 (Strong Sell).

AMC Theatres has been fighting the streaming trend with new subscription-based offers and premium pricing. The first half of 2019 saw a 3% decline in theater attendance internationally, and more than a 3% fall in domestic attendance. Q2 was able to offset the significant declines in Q1 marginally, but movie attendance figures have been falling since Blockbuster in the late 90s, and the streaming services only give consumers less of a reason to leave their couch and go to the theater.

AMC launched Stubs A-list in June of 2018 following the business model of the failed MoviePass. MoviePass came up with the genius idea of a subscription-based movie theater pass that allowed users to watch ostensibly an unlimited number of movies a month for $10 a month. This seemed too good to be true, and without joining its efforts with the big movie chains, it was.

The movie chains like AMC just waited for MoviePass to bleed out so they could start their own chain related movie pass called Stubs A-list. AMC's subscription movie pass costs between $20-30 a month and allows users to see up to 3 free movies a week as well as discounted concessions. Currently, this platform has over 900,000 subscribers, but it must continue to raise prices for this venture to be profitable.

Now Stubs A-list subscription will include its streaming service as of last week. This streaming service is only going to be provided to AMC's subscribers and will not provide any free content. There is absolutely nothing special about this platform and see no reason that a user would switch from buying movies on their Amazon Video account or any of the other basket of services that consumers are already using.

Financials

AMC is fighting to stay above water, with its bottom-line teetering from losses to profitability then back. They need to spend an increasing amount on maintaining their current sales level, and margins have suffered. Rent has been pulling the company down with double-digit year-over-year increases in rent through the first half of the year, while the firm's total screen count has decreased.

Since the beginning of 2017, this stock has lost over 70% of its total market value, with a 30% drop off just this year. AMC is struggling with liquidity with a dwindling amount of cash on hand. AMC is currently trading as a junk bond, and I would put this stock on the same level.

Take Away

AMC Theatre isn't about to file for bankruptcy, but the stock is the definition of a falling knife, and I would stay away from these shares. Look for earnings mid-November for more color on the business plan moving forward. How do they plan on producing a stronger topline and creating liquidity?

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