Shares of AMC Networks (NASDAQ:AMCX) fell 29.9% in 2016, according to data from S&P Global Market Intelligence. Last year was a drastic reversal from 2015, when AMC investors enjoyed a 16% positive return instead.
AMC's road up the stock charts was built out of zombies. The Walking Dead has been dominating the cable-viewership charts for most of its seven seasons, and is often cited by AMC executives as a key driver of both advertising and licensing revenues.
But after the seventh-season premiere pulled in 17 million same-day viewers thanks to a tense cliffhanger, the show quickly started losing eyeballs. The mid-season finale notched just 10.6 million same-day viewers, which works out to a 38% smaller audience. To put that trend into context, the season 6 premiere of The Walking Dead saw 14.6 million viewers while 14 million tuned in to the mid-season crescendo. That was just a 4% viewership drop, while the latest numbers are also down year over year.
That's not good news for AMC's ad sales team, and the lifeless audience response to recent showings of AMC's biggest hit is infecting the entire company. Yes, The Walking Dead is still very successful, and most showrunners would kill for audience ratings anywhere near this series's most bloodless weeks. But negative trends are negative trends, and AMC's overall operations lean on The Walking Dead and its various spinoff titles in a big way.
In particular, analysts believe that AMC needs hits on the level of a healthy The Walking Dead in order to stave off challenges from nontraditional media channels. Without that big-ticket support, AMC's stock loses investor appeal very quickly.
On the upside, AMC shares are trading at just 9.1 times forward earnings. Another megahit, or just a second wind in the desiccated lungs of The Walking Dead, would quickly build value for buyers at this low valuation ratio. Meanwhile, AMC's formerly rapid sales and earnings growth has slowed down dramatically in recent quarters. The company could sure use a fresh taste of success. The upcoming fourth-quarter report will probably not deliver that kind of uplifting news, but The Walking Dead is coming back in February.
Keep a close eye on the viewership ratings in the second half of the seventh season. That's the key to AMC's financial future.