Throughout 2021, AMC Entertainment (AMC -0.88%) has been swept up in meme-stock mania. Despite its worsening financial situation, shares have skyrocketed 2,600% this year. And while there is something charming about individual investors upending Wall Street, AMC stock is poised to disappoint.
Rather than chasing meme-stocks, investors should consider buying Cloudflare (NET 3.77%). This company is growing quickly and its future looks bright. Here's why.
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AMC Entertainment
Perhaps, the most important thing investors should know about AMC is something the company itself mentioned in a recent 8-K Filing: "We believe that recent volatility and our current market prices reflect [dynamics] unrelated to our underlying business."
The statement goes on to caution investors against buying stock unless they are prepared to lose all or a significant portion of their investment. Of course, you should never invest money you can't afford to lose, but this dire warning should still rattle current and prospective shareholders.
If you're not convinced, let's look at AMC's financial results. Last year, attendance and revenue fell 79% and 77%, respectively. And despite reopening roughly one-third of its international theaters and two-thirds of its domestic theaters, its performance has actually worsened this year. Attendance and revenue plunged 89% and 84%, respectively, during the first quarter.
Image source: Getty Images
Understandably, some investors are hoping things improve as the economy reopens. But that may be too late -- the competitive landscape has already shifted dramatically.
During the pandemic, streaming services like HBO Max and Peacock went live, Disney+ started taking titles directly to consumers, and Universal Studios cut the theatrical exclusivity window to 17 days -- prior to the pandemic, AMC retained exclusive rights for about 90 days. Put simply, the company is facing more competition than ever before.
As a final thought, in a recent 10-Q Filing with the SEC, AMC explained that it will need to reach 85% of pre-pandemic attendance levels by the fourth quarter of 2021 in order to comply with minimum liquidity requirements. If that doesn't happen, bankruptcy would likely be the next step, which means shareholders would "suffer a total loss of their investment."
Cloudflare
Cloudflare is a cloud services provider. Its platform helps clients secure and accelerate the performance of websites and applications. For example, it recently launched Cloudflare One, a network-as-a-service solution designed to replace outdated corporate networks.
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Traditionally, enterprises have taken a castle-and-moat approach to network security. All sensitive data was stored in a central location, and firewall appliances and internet gateways were used to filter incoming and outgoing traffic. This was both costly and inefficient, often resulting in lag time for remote workers.
By comparison, Cloudflare One acts as a secure access service edge (SASE). Rather than sending traffic through a central hub, SASE is a distributed network architecture. This means employees connect to Cloudflare's network, where traffic is filtered and security policies are enforced, then traffic is routed to the internet or the corporate network.
This creates a fast, secure experience for employees, allowing them to access corporate resources and applications from any location, on any device. Moreover, according to research firm Gartner, 40% of enterprises will have plans to adopt SASE by 2024, up from just 1% in 2018. That radical shift gives Cloudflare a big opportunity.
More importantly, the company is executing on that opportunity. Cloudflare has consistently delivered strong financial results in recent years.
|
Metric |
2017 |
Q1 2021 (TTM) |
CAGR |
|---|---|---|---|
|
Customers |
49,309 |
119,206 |
31% |
|
Revenue |
$135 million |
$478 million |
48% |
Source: Cloudflare SEC Filings. TTM = trailing-12-months. CAGR = compound annual growth rate.
In addition to growing quickly, Cloudflare also reported a net retention rate of 123% in the most recent quarter. Put another way, the average spend per customer increased 23% in Q1. This underscores the value of its platform. And assuming Cloudflare can maintain that momentum, the future looks bright for the tech company.
