Premium cable broadcaster and content producer AMC Networks (NASDAQ:AMCX) reported third-quarter results on Wednesday. The company posted modest growth across the board, and AMC's CEO sketched out the company's future in video streaming.

AMC Networks' third-quarter results by the numbers

Metric

Q3 2019

Q3 2018

Change

Net revenue

$719 million

$697 million

3.1%

Net income attributable to shareholders

$117 million

$111 million

5.1%

GAAP earnings per share (diluted)

$2.07

$1.93

7.3%

Data source: AMC Networks. GAAP = generally accepted accounting principles.

What's new with AMC Networks?

  • AMC's national networks' revenues held almost perfectly steady year over year, falling by $1 million to $559 million. A 1% increase in distribution sales was balanced out by 2% lower advertising revenues. Operating profits in this division declined 3% to $182 million, driven by restructuring charges and the timing of certain content deliveries.
  • Sales rose 21% in the international and other segment, landing at $183 million. Operating losses in this division decreased from $12 million to $5 million. AMC's catalog of hit shows such as The Walking Dead and Breaking Bad is helping the company's streaming video channels find a global audience.
  • Backing out restructuring charges and costs related to several acquisitions over the last few years, adjusted earnings rose 8.4% to $2.33 per diluted share. That makes a mixed report out of the third quarter, as analysts had been expecting adjusted earnings near $1.66 per share on sales in the neighborhood of $734 million.
  • AMC's management is not in the habit of issuing firm financial guidance, but it does provide some forward-looking color commentary from time to time. This quarter largely conformed to the directional forecast given three months ago, predicting "revenue growth versus the prior-year period" in national networks and healthy growth across the board in the international segment.
A young couple sharing a bucket of popcorn on their living room couch, staring at the TV screen in wide-eyed amazement.

Image source: Getty Images.

What management wanted to say

On the earnings call, CEO Josh Sapan scrutinized his company's shifting business model.

"AMC Networks is well on its way to strategically transforming itself from a cable channels company into a premier content company with the suite of focused and targeted video entertainment products that are delivered to viewers on an ever-expanding array of platforms," Sapan said. "These include our linear TV channels carried by traditional and new virtual MVPDs. Our targeted direct-to-consumer streaming services, our digital platforms on social media, and anywhere else that viewers consume content today and will in the future. As we've said previously, the underlying strategic priorities fueling this transformation have and continue to be creating, owning, and producing great content and valuable intellectual property and maximizing monetization of that content."

The "key pillars" supporting this shift toward video streaming platforms consist of developing and nurturing strong content, keeping advertisers and license-paying broadcasters clued in on the value of that content, and marketing the whole package effectively around the world. In other words, AMC is back to Basics of Entertainment Content 101, just on a new type of platform.

Looking ahead

In keeping with AMC's tradition of providing high-level color commentary rather than specific guidance figures, Sapan said that fourth-quarter sales should come in slightly below the year-ago period's result of $773 million.

The national networks segment faces a difficult year-over-year comparison because of the premiere of Doctor Who on BBC America in the final quarter of 2018 and a generally strong lineup of holiday-themed content last year. "Healthy growth" in international sales should make up for that shortfall, powered by the natural evolution of the streaming video strategy Sapan outlined earlier.

AMC's stock has taken a beating recently, diving 25% lower over the past year including a 9% dip in this week alone. You can buy these shares for just 5.6 times trailing and 5 times forward earnings or 4,7 times free cash flows -- all bargain-bin multiples. Investors appear to have given up hope on AMC's future, even though the company is transforming into a sustainable streaming specialist right before our eyes.

That's a big mistake, and I think AMC is a solid buy at these ultra-low prices.