The recovery for the multiplex industry was already starting to get wobbly for AMC Entertainment Holdings (NYSE:AMC) even before the U.S. Centers for Disease Control and Prevention updated its advisory for the COVID-19 crisis. With cases surging in a growing number of markets, the CDC is now recommending that even fully vaccinated people go back to face coverings in indoor areas of high or substantial transmission.
It is a recommendation and not a requirement right now, but it's a big blow to AMC and its smaller rivals. Movie theaters need high-margin concession sales to be profitable. The rapid spread of the delta variant of the COVID-19 virus is also problematic for young moviegoers, as kids under 12 are still not cleared to take any of the three available vaccines.
Is IMAX (NYSE:IMAX) the safer and possibly smarter way to play the potential recovery of the movie theater industry? Let's skip to the feature attraction, pitting AMC against IMAX as the better investment.
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IMAX posted blowout financial results on Tuesday afternoon. The year-over-year comparisons were going to be big given last year's pandemic-depressed climate, but the $51 million in revenue it posted for the quarter was well ahead of the $40.6 million that analysts were targeting.
IMAX also came through with a deficit that was less than half the red ink that Wall Street pros were forecasting. This is the third consecutive quarter of positive EBITDA for IMAX, a testament to its leaner model than actual multiplex operators as well as the global reach of IMAX.
A big reason for IMAX bouncing back quicker than domestic multiplex players is that it's a global company. Audiences have been turning out in record numbers in China and other rebounding markets, unlike the disappointing trends we're seeing in box office receipts for conventional screenings closer to home.
It also only helps that IMAX leans on the big-budget action flicks that have been dominating the box office this summer. Folks are deciding to stream most of the indie fare and kid-friendly films at home, a trend that will only intensify with the new CDC mandate likely keeping young families away from the multiplex for the balance of the summer.
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AMC has set itself apart as the class act among traditional movie theater chains. Analysts and seasoned investors may be left scratching their heads at the stock's valuation, but there's no denying that CEO Adam Aron has done a great job of transforming AMC's status as a meme stock into an opportunity to galvanize its millions of retail investors.
The problem here is that the recovery is starting to sputter. Studios are finally cranking out content, but the country's box office receipts are less than half of what they were two years ago. Just 2% of the country went to the movies last weekend, the worst showing of the telltale summer season. With so many theatrical releases available as legal streams and distribution windows narrowing, viewers have a choice now. They're coming out to the IMAX screenings of superhero films and star-studded thrillers, but that's not enough to fill a 24-screen multiplex.
No one would be surprised if in the near future there were fewer movie theaters across the country than there are now. Meanwhile we've seen IMAX complete 100 installations worldwide during the pandemic alone. AMC will compete with a shrinking pie, and it may even pick up some of its competitors for pennies on the dollar.
IMAX is ahead of AMC in its recovery. In the same first quarter that saw AMC check in with an 84% decline in revenue, IMAX clocked in with an 11% increase. Both companies will naturally suffer if viewership trends don't improve substantially, and the pipeline of theatrical releases will get better for both players next year. IMAX just seems to have more upside after not appreciating as much as AMC has this year, and the provider of enhanced screening experiences also should hold up better on the downside if a sell-off does happen later this year.