Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of AMC Entertainment Holdings, Inc. Plunged 53% in 2017

By Travis Hoium - Jan 12, 2018 at 5:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The movie theater business started to go dark in 2017.

What happened 

Shares of movie theater operator AMC Entertainment Holdings, Inc. (AMC 2.51%) plunged 53.1% in 2017, according to data provided by S&P Global Market Intelligence, as profits began to deteriorate at the box office. The company grew rapidly after acquiring Odeon & UCI Cinemas as well as Nordic Cinema Group for a combined $2.2 billion. That's about the same amount of value as AMC's shares lost in 2017. 

So what 

Problems began in earnest when second-quarter results were released, showing a loss of $176.5 million on a $202.6 million writedown of NCM assets. What's really shocking is that revenue for the first three quarters of the year was up 59.7% to $2.33 billion, but adjusted EBITDA was only up 27.1% to $534.3 million. 

Empty movie theater with a white screen.

Image source: Getty Images.

AMC is a high-fixed-cost business, so the company has a lot of operating leverage. That means that if revenue rises 1%, we would expect earnings to rise much more than 1%. But the converse is also true, and if revenue per theater isn't going up, we'll see earnings lag as well. That appears to be happening in 2017. 

The problem isn't AMC-centric; it's with the movie business in general. In 2017, ticket sales were down 5.8% in the U.S. and total box office gross was down 2.7% to $11.1 billion. That doesn't bode well for any theater company. 

Now what 

AMC expanded its own business just as the movie theater business started to slow down. With consumers having better access to movies at home and on-demand services getting movies more quickly, there's less reason to go to the movie theater today. That's the harsh reality of the business AMC is in, and that'll make it tough for the company to recover anytime soon. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$13.08 (2.51%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.