AMC Entertainment Holdings (AMC 10.16%) is among the group of troubled companies enjoying short-squeeze attention. Its market cap had spiked as much as 860% this year to $6.7 billion even amid some daunting times for the company.
This rise is entirely divorced from the company's underlying fundamentals and seems to be somewhat divorced from reality as well. Here, we will explore why investors should avoid AMC, and why they should consider newly public streaming platform CuriosityStream (CURI 5.81%) instead.
AMC's struggles are real
In the theater chain's most recent quarter, COVID-19 hit operations hard. Its sales cratered 90.9%, its cash burn accelerated, and its margin profile worsened. This can be expected while the pandemic forces some of its locations to shutter and others to limit capacity, but it's undeniably troubling.
The company will likely recover as the pandemic ebbs, but it's unclear as to how quick or strong that recovery will be, and content creators aren't helping. Streaming platform Netflix this year plans to release a new movie every single week to attract subscribers and to even more effectively compete with box office sales. Beyond that, AT&T's Warner Bros. has decided to simultaneously release its 2021 film slate to theaters and to its HBO Max streaming platform, and Walt Disney is making similar moves by releasing its feature Soul exclusively on Disney+.
AMC is a content distributor, not a creator. The company needs studios to provide new movies to exclusively show to its consumers and that no longer seems to be a guarantee. Considering all of this, perhaps it makes sense to invest in an organization that operates in a less troubling environment. That's where CuriosityStream comes in.
Meet CuriosityStream, the factual streaming platform
CuriosityStream, which went public last year by merging with a special purpose acquisition company (SPAC), has a focus on factual and educational streaming content. The focus equips the young streamer with content costs totaling 5% to 10% of its scripted equivalent and allows CuriosityStream to build out a large content library with limited resources.
The niche also makes this company an ideal candidate to partner with universities on co-branded streaming libraries -- one of its anticipated primary revenue streams.
Some educational programming competition, like Discovery Communications, has been shifting to reality content for several years to attract new eyeballs, leaving a content void for CuriosityStream to fill. The pure education content it provides is surely ideal for universities, and its advisory board, which features Georgetown University's president among other individuals in academia, hints at its possible intentions.
CuriosityStream owns most of its content, so unlike AMC it can monetize it whenever and however it wishes. The company leverages this optionality to distribute its programs to bundlers like Tata Sky in India (19 million streamers) and by making its content available on devices like Roku and Amazon's Fire TV to drive growth. For evidence of how this strategy is working, look no further than its financials.
For 2021, the company expects to grow sales by 80% year over year to $71 million with its profit margin improving from negative 64% in 2020 to negative 17%. This is after 119% revenue growth and its profitability rapidly improving in 2020.
Looking ahead to 2023, CuriosityStream anticipates revenue growth of 49% to reach $202 million in sales with the organization boasting a 15% profit margin at that time. AMC is trending in the opposite direction in terms of demand and profitability, but the theater chain's stock performance has far surpassed CuriosityStream's year to date regardless.
If CuriosityStream can realize its 2023 objectives, it would trade for roughly 47 times 2023 price-to-earnings based on a fully diluted share count of 81.67 million shares. As of its most recent quarter it was on track with its forecasts, but nothing is ever certain and it could always fall short. This is still quite a new organization and that's why the makeup of its leadership is encouraging.
The company was founded by John Hendricks, the founder and former chairman of Discovery Communications. Hendricks has decades of experience in running an educational cable network, and is now poised to shift his factual know-how to the streaming universe. Hendricks brought with him several former Discovery executives and his recent CuriosityStream share purchases point to his optimism in the company's prospects.
CuriosityStream is a better bet than AMC
AMC finds itself in an overwhelmingly negative business environment without much guarantee a full recovery will ever be realized. By contrast, CuriosityStream is thriving and looks to be in the early innings of its expansion. To me, the choice is clear; avoid AMC and go with CuriosityStream.