Another day, another massive swing to the downside for the stock market. There is very little good news emanating from the media, and travel and entertainment companies in particular are getting a beatdown as worries mount that consumers will stay at home (willfully, or at the behest of the powers that be) to slow the spread of COVID-19.
The novel coronavirus is wreaking particular havoc on the movie theater industry. It's not just that the respiratory illness is influencing moviegoers to stay home, nor is it necessarily the result of public health organizations and government officials limiting the congregating of large groups of people (theaters in the U.S. haven't started shutting down ... yet). Rather, what was already shaping up to be a modest year in the way of new movie releases has been exacerbated by many of those new movies delaying their debuts.
A sour end to 2019 carries over into 2020
2019 started out so promising, but it ended with a dud at the global box office. Avengers: Endgame came out in May and currently holds the record for biggest box office haul ever at $2.798 billion worldwide. While Walt Disney's (NYSE:DIS) Marvel superhero flicks tried their best to save the day, its Star Wars franchise didn't pull its own weight. In December, Star Wars: The Rise of Skywalker was released to highly mixed and polarized reviews. Ultimately, the detractors won out, and the sci-fi epic brought in just $1.074 billion worldwide.
While certainly not an utter failure, the film was expected to bring in several hundred million more than that and contributed to a less-than-stellar quarterly report for Disney's film segment during the holidays. Disney can absorb the letdown, but movie theaters are a different story. Global ticket sales receipts fell 4.8% in 2019 compared with 2018 -- even with average ticket prices increasing. And a weak turnout for Star Wars in January is another reason 2020 year-to-date ticket sales are down another 5.6% compared with the comparable period in 2019.
It's not great news for theater chains such as AMC Entertainment (NYSE:AMC), which run on tight profit margins. For AMC specifically, the world's largest theater chain (which operates in the U.S. and northern Europe), fourth-quarter 2019 revenue bucked the trend and was up 2.4% year over year, and adjusted net earnings improved, too. However, to give itself more wiggle room in what was going to be a slower year in 2020 anyway, the company slashed its quarterly dividend to $0.03 compared to $0.20 before. Boy was I wrong about that one.
A wave of cancellations
Nevertheless, it's a good thing AMC tightened up the cash outflow, and other theaters will need to follow suit. Not only is foot traffic going to shrink because of COVID-19 itself, but it's also likely to dry up as the major movie releases set for late winter and spring are delayed left and right.
It all started with the upcoming James Bond entry No Time to Die getting bumped from April 10, 2020 to November 25. ViacomCBS (NASDAQ: VIAC) did the same with A Quiet Place 2 and is looking for a new release date, and Sony (NYSE:SNE) pushed Peter Rabbit 2: The Runaway out until August. Perhaps the most dramatic move was Comcast's (NASDAQ:CMCSA) NBCUniversal delaying Fast and the Furious 9 from May 2020 until April 2021. Numerous other films have been rescheduled. And as of this writing, Disney also broke the news that it's looking for a new date for its live-action adaptation of Mulan that was set to debut on March 27. Yikes.
That doesn't leave much for theaters to work with for the next couple of months, at least not until the next Marvel movie, Black Widow, appears on the silver screen on May 1. Of course, one might reason that demand for box office sales is just getting delayed, and theaters will rebound later this year. However, movie release dates are a tricky thing. Delaying films means production studios are now looking at a crowded back half of 2020.
Schedule a film's release for the same weekend as another big blockbuster, or too close to another weekend opening, and competition for screens and eyeballs becomes a problem. Besides, an outing to the movies isn't exactly cheap anymore, so too many options paired with high ticket prices and any lingering concern over coronavirus could mean movie theaters don't fully recapture lost sales this year.
All of this is to say that, while I think the theater industry will be okay, investors who have been eyeing beaten-up stocks such as AMC might want to remain cautious for a bit longer.