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AMC's Earnings: How The Show Goes On

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Includes: AAPL, AMC, AMZN, CMCSA, DIS, FB, MSFT, NFLX, T, TSLA, XLY
by: Interactive Brokers
Summary

Among the thick crowd of companies awaiting to announce earnings this season, 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 streaming video services such as Netflix and Hulu, as well as amid intensified rivalry in the direct-video delivery space.

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

Among the thick crowd of companies awaiting to announce earnings this season, AMC Entertainment Holdings (NYSE: AMC) 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), Hulu 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.

However, 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, with most of the cash burn associated with “enormous spending on content.”

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

Streaming Services Multiply

The Walt Disney Company (NYSE: DIS), 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 around 18% as of the May billing cycle.

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 (NASDAQ: CMCSA), are also the remaining owners of video streaming service Hulu, after telecom giant AT&T (NYSE: 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.”

Other entrants into the streaming service space include Apple's (NASDAQ: AAPL) TV+, which is set to be introduced in the fall of 2019, as well as existing offerings from Alphabet-owned (NASDAQ: GOOGL) Google's (NASDAQ: GOOG) YouTube, Tubi and Pluto TV.

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

Despite the swings in theatrical revenues, AMC’s stock recently 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 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 slated to release its Q1’2019 earnings results Monday, May 6.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am receiving compensation from my employer to produce this material.