One of the most interesting ways to use data is to show how society changes over time. From the median size of homes to the percent of dual-income families, numbers show us how what we consider normal may change drastically over time.
AMC Networks (AMC +0.00%) has been stuck in the crosshairs of one of those changes for the past two decades. As home theaters and streaming services have become ubiquitous, the traditional movie theater experience is a thing of the past for many. Despite many metrics showing a business pointing in the wrong direction, the stock has skyrocketed. Shareholders may want to hurry and cash in on the anomaly while it lasts. These five charts indicate the disconnect from reality won't last.
Image source: Getty Images.
Streaming has skyrocketed
Netflix's consistent growth in subscribers over the past decade indicates a huge problem for the theater industry. It's much easier to pick up a remote in sweatpants than get dressed and drive to a theater. In 2014, a survey showed 57% of Americans would rather stay home than go to the movies. Only 21% said they prefer the experience of going to a movie theater. By 2020, the number was 70%.
Add in the decision by Warner Bros. to stream all new movies through HBO Max in 2021 and it's not an overreaction to think a night out at the movies could become a thing of the past.
Data source: Netflix.
Ticket sales are stagnant
During the 1918 influenza pandemic, people desperately missed going to the movies. Theaters only closed for a few weeks, but motion pictures had become an important part of peoples' lives. More than a century later, it's hard to make the case that theaters were missed as much. Ticket sales have been drifting downward in the U.S. and Canada for nearly two decades.
A 2017 study found the most prolific moviegoers were between 12 years old and 24 years old. Those cash-strapped consumers aren't typically the most sought-after cohort. Adding insult to injury, purchases fell off a cliff as theaters were closed throughout both countries for much of last year.
Data source: Statista.
With COVID-19 still circulating, and many AMC theaters still closed or only allowing a fraction of the seats to be filled, attendance has been abysmal. In the company's first quarter, it was down 84% and 97% in the U.S. and abroad, respectively.
An acquisition boosted revenue
Until last year, sales appeared to have held up well for AMC. That's because the company acquired Nordic Cinema Group in 2017. With the deal, AMC became the largest operator in the U.S., Europe, and worldwide. The move buoyed sales but the additional scale hasn't translated to profits. That was true even before the pandemic.
AMC Revenue (Annual) data by YCharts
For 2020, AMC's sales understandably cratered. Revenue was down 77% for the year and the first quarter of 2021 looked even worse, down 84% year over year.
Sales aren't providing the advantages of scale
AMC hasn't been able to squeeze out more profit from the larger operation and additional sales. In fact, operating income has oscillated between $200 million and $300 million since 2015. That was during a stretch when sales rose 85%. Operating cash flow only rose 24% during that time.
AMC Operating Income (Annual) data by YCharts
With sales tanking last year, expenses overwhelmed the company. Operating income registered an eye-popping negative $1.54 billion in 2020. The continued partial opening -- if that -- kept the year-over-year profit metrics deeply in the red for the first quarter. In those three months, AMC posted a net loss of $567 million and burned $313 million in cash.
The stock price does not make sense
Despite the general disdain for going to the movies, partial or full closure of many theaters, and the dismal operating metrics, shareholders have been richly rewarded. In fact, the stock is up 3,000% so far this year. That flies in the face of much of what most of us were ever taught about investing. Many financial bubbles are accompanied by the words "this time it's different." That's unlikely to be true this time.
It all ends badly
In the five years before the pandemic, AMC Entertainment's price-to-sales ratio fell from around 1.0 to 0.15. It currently trades for 25-times sales. Even using normalized revenue for a post-pandemic recovery, AMC is an incredible five times 2019 sales. That's 33 times more expensive than it was before COVID-19.
To management's credit, it is using the opportunity to raise capital and offering a caveat. On Thursday, the company announced it would sell 11.55 million shares and cautioned investors that the current stock price was not in line with its underlying business. The release also warned that anyone buying those shares should be prepared to lose all or a substantial portion of the investment. Based on business performance and historical valuations, it seems like they should expect to eventually lose it.
No one knows how high the stock could rise before then. To reference Stranger Things -- one of the most popular streaming shows of the past few years -- investing in 2021 feels like we're in the upside down. Maybe we'll never get out.
