The coronavirus pandemic has disrupted most companies in some form or another, but perhaps no industry has been as upended as the entertainment business. Streaming video has been gaining traction for years, but that shift accelerated once people began spending all their time at home. Many consumers also used this time to rethink -- or even cancel -- their cable service. Many amusement parks have reopened, but some thrill-seekers remain hesitant to visit them.
The dust is starting to settle on the upheaval for some in the sector, and it is allowing investors to begin determining the new normal for the business. Although they're not the only names in the industry worth keeping an eye on, three entertainment stocks should be watched closely this month as they'll speak volumes about the future of their respective industries.
1. AMC Entertainment
The COVID-19 pandemic has been tough on movie theater chains like Cineworld and Cinemark Holdings. But none has been as adversely impacted as debt-laden AMC Entertainment (AMC 1.92%). Simply put, AMC needs cash -- now. Back on Dec. 11, the company told investors it only had enough liquidity to last through the middle of this month, and would need an estimated $750 million worth of new funding to make it through 2021.
It's made arrangements for at least some of this funding. In early December the company filed to sell another 200 million new shares of its stock, which (at the stock's price then) would have raised more than $800 million. The value of AMC shares immediately plummeted, though, raising questions as to how much money the company would have been able to raise with that offering. Then, late last month it registered another 50 million new shares of stock, though the stock's continued price plunge in the interim would have translated into only roughly $125 million worth of fresh funding. In between those two filings, AMC Entertainment inked a deal with Mudrick Capital Management, which pledged $100 million in exchange for new first-lien debt. That money should be made available in the middle of this month.
It's an awful lot of liquidity to ask for in a very short period of time, suggesting AMC Entertainment is desperate.
The company likely collected enough cash -- or will -- to last another couple of months. If it continues to ask for more money this month, however, it may be a sign that AMC's struggling to raise enough funds from the sale of newly issued stock. Investors should keep their finger on the pulse of AMC Entertainment, even without more fundraising plans. Its story is coming to a pivotal point. Even its lenders are now encouraging it to declare bankruptcy.
Obviously, all earnings reports are important, but fans and followers of entertainment stocks will definitely want to mark Jan. 28 on their calendar. That's when cable television and media giant Comcast (CMCSA -0.59%) will report its fourth-quarter numbers. There's plenty packed into that filing that will not only mean much for Comcast, but may be an indication of how its rivals are faring on the same fronts.
Three data nuggets in the quarterly report will be particularly noteworthy.
- Peacock: The last reported number of Peacock subscribers was 26 million, up 4 million from the third quarter's (ending in October) official count. That's not bad considering the streaming service only launched in July, but the ad-supported service needs to keep growing at a brisk pace.
- Parks: Like competing theme park operators Walt Disney and Cedar Fair, Comcast's parks are open, but struggling with crimped foot traffic. Third-quarter theme park revenue was off 80% year over year, and was down 71% year to date. This division was and still is deep in the red. Any progress here would be nice, but that somehow seems unlikely.
- Cable TV: Cable customer attrition has become the norm for the industry. Success on this front now simply means slowing subscriber losses, while failure means allowing them to accelerate while these companies work to monetize these people in other, new ways (like making them mobile phone customers). To this end, Comcast lost 273,000 cable subscribers during Q3.
Comcast is also the owner of movie studio Universal, which has clearly been impacted by the coronavirus. Studios are making different decisions about production and the timing of film releases, however, so weakness or strength from this arm means very little this time around.
Finally, add fuboTV (FUBO -2.17%) to your list of entertainment stocks to watch this month, but not necessarily for the reason you might think.
While the cord-cutting movement is going strong, it's nuanced. Consumers may be severing ties with conventional cable companies, but streaming cable service providers are actually drawing customers in. Their lower monthly prices meant the United States virtual cable industry's names collectively added more than 1.5 million paying customers during the third quarter of last year. FuboTV picked up 169,000 of these new subscribers, marking a 59% sequential improvement of the second quarter's headcount. It's still not enough scale to make the company profitable, but the growth trajectory has been enough to catapult its stock more than 600% higher from September's low to last month's high.
More than half of that gain has been given up in the meantime, however, as questions about the company's actual profit prospects surface. As LightShed Partners' analysts put it, "the run-up in FUBO shares is just plain egregious, in our view." adding that the stock may be "the most compelling short we have ever identified in our career as analysts."
What investors need to watch for this month is how the market responds. Will bullish investors buy on the dip, and will other analysts push back on the bearish call by suggesting fuboTV's model has long-term profit potential? It's not just support for fuboTV that's on the line, either. In some ways, LightShed's doubts are an indictment of the streaming cable TV business itself.