I'm going to attempt what I haven't seen even the most ardent AMC Entertainment Holdings (AMC -1.45%) bull do: make a viable long-term argument for owning a piece of the reeling multiplex operator. You don't see too many AMC shareholders realistically talking about the long-term fundamentals. I want to give it a shot.
AMC bulls talk a good chart game. They point to technical analysis, short squeezes, and the mother of all gamma squeezes as catalysts for their enthusiasm. If they're feeling particularly inspired, they may even venture off into conspiracy theories about hedge funds and analysts working together to keep the longs down.
It's always darkest before the plot twist
The highest AMC stock-price target among the leading Wall Street firms is just $5.50. If you think that these analysts have more to gain by feeding your conspiracy theory narrative than by playing nice with AMC to earn the long tail of underwriting proceeds from the inevitable years of secondary stock and debt offerings, you might want to rethink who is playing on what team here.
The speculative talk about hedgies and near-term price moves seems to dismiss the math. Short interest recently hit its lowest level in almost two years. We're well below the peak short interest set a whopping 14 months ago. Press an AMC long about fundamentals, and the bullish case lands somewhere between "pent-up demand" and consumers longing for an experience that can't be duplicated at home.
Lost in the bullish talking points is that this isn't just a consumer-demand problem. There's a real supply issue at the other end of the COVID-19 tunnel. It's been an eternity since theaters shut down in mid-March of last year. Since the shutdown, we've seen several new streaming services launch -- including HBO Max, Peacock, and now Paramount+ -- and they're all owned by media giants with movie studios that are now prioritizing their direct-to-consumer platforms over theatrical distribution.
The genie's out of the bottle. Waiting three months after a theatrical release is no longer on the menu for most Hollywood studios, and streaming consumption has only gone up -- not down -- in recent months as states relax their pandemic guidelines. A lifetime ago you would've only seen Coming to America 2, Raya and the Last Dragon, and The SpongBob Movie: Sponge on the Run at a multiplex near you. Instead you could've seen all three of those U.S. premieres from the comfort of your own bandwidth-blessed home.
And now: your feature presentation
By now, it may seem that this is just another burn piece on AMC. You were promised a bull argument, and it's just been a bullet-hole-riddling sport for bearish enjoyment. If you made it this far, let me deliver on what I promised.
AMC is a survivor, and not just because it's been around for 101 years. When its largest rival, Cineworld Group's Regal Cinemas, shut down its projectors in October, I suggested that AMC may be the hottest stock of 2021. The shares have nearly quadrupled this year, so that article's call is off to a pretty good start this young year.
It's also true that I've been critical about AMC's prospects. I won't take back my concerns that consumers are choosing to stay home and that Hollywood studios have more to feed now than just the cuckoo-chick nuisance that theater chains were when they used to rule the nest. The pre-2020 model won't work in the future, but it doesn't mean that AMC is toast.
Let's start with the shake-out. Do you really think that Regal is coming back? AMC has stayed open to keep its brand alive and relevant. The industry isn't going to look kindly on the quitters, and with the long road back for the industry, a lot of chains will fade to black in more ways than one. AMC will be able to gobble up market share, even if it will be a shrinking pie. Analysts see at least three more years of red ink, and AMC has been raising money to be sure it makes it through this rough patch.
AMC being the last multiplex operator standing isn't much of a bullish endorsement, but why are bears assuming that the industry itself won't evolve? There is no turning back to traditional theatrical-release windows for the media giants that create films, but why are we assuming that it will be the same product on the silver screen as it is at home? Just as some directors prefer to shoot extra scenes for releases on IMAX, why can't movie theaters offer a differentiated product that's enhanced for the cinematic experience? If media stocks can back their homegrown streaming service while also generating incremental revenue by giving fans of a new release a different spin on the big screen, why wouldn't they do that?
AMC has made the most of the pandemic lull to beef up mobile ordering for concessions, offer assigned seating for screenings, and even create the option to rent out an entire theater on the cheap. If it can adapt to the future as well as it's trying in the present, do you really want to bet against an industry leader that has raised a ton of dough to make a 24-screen multiplex as flexible and malleable as possible? What if the future of AMC is showing new releases on some of its larger screens but also catering to a fantasy football league on draft night, a rising improv troupe performing live in another, and a charity bingo game at the same time?
The country's largest multiplex operator has raised enough money to give it more time than most competitors. Time is optionality. Time is a chance to disrupt itself. Time is a future.