As the country's largest theater chain, AMC Entertainment Holdings (AMC 9.63%) will likely experience a huge revenue boost from the release of Top Gun: Maverick. According to Paramount, the movie grossed $300 million globally during its opening weekend.
However, the theater industry reeled from months of lockdowns, and the industry's suffering continues. This likely means the success of one blockbuster movie will not rescue AMC as the movie falls short of addressing three key issues with both the company and the entertainment stock.
Image source: Getty Images.
1. Revenue and attendance
Even before the release of Top Gun: Maverick, AMC had made substantial progress in its recovery. In the first quarter of 2022, revenue surged to $786 million. That is a dramatic improvement from the $148 million reported in the first quarter of 2021.
Unfortunately, when compared to pre-pandemic numbers, revenue remains far behind. When the lockdowns began in the first quarter of 2020, AMC still managed to log $942 million in revenue for the first quarter of 2020.
Additionally, attendance numbers paint a much bleaker picture. In the first quarter of 2022, AMC sold around 39.1 million movie tickets. In comparison, the company sold about 60.5 million tickets in the first quarter of 2020 and 79.8 million in the first quarter of 2019. AMC CEO Adam Aron told CNBC that the theater chain sold 3.3 million tickets for Top Gun: Maverick over the weekend. Nonetheless, AMC probably has a long way to go before it can match 2019 ticket sales.
2. The dismal earnings picture
Also, like revenue, earnings show an improvement but remain underwater. In the first quarter of 2022, AMC cut its net loss to $337 million, or $0.65 per share, an improvement from $567 million in the first quarter of 2021.
However, even in better times, AMC struggled to make a profit. Despite more robust attendance numbers in the first quarter of 2019, that quarter ended with a $130 million loss.
Moreover, the projections do not look promising. Analysts expect a loss of $1.11 per share, which comes after a predicted 75% increase in revenue. In 2023, even though analysts forecast a 17% revenue increase, the consensus loss is still $0.47 per share. Such conditions cast doubt on whether the company can ever prosper.
3. Outside investments
Furthermore, management's inclination to invest outside its industry casts further doubt on a recovery. Some outside investments make sense. Popcorn was a popular item at its theaters. Hence, the decision to sell AMC popcorn at grocery stores holds some merit.
However, a venture in an unrelated industry has left investors scratching their heads. In Q1, AMC invested $27.9 million in a 22% stake in Hycroft, a company that mines gold and silver. AMC's management cited its own success in raising capital to tackle liquidity challenges as the main reason why it could make such an investment work.
The temporary surge in AMC stock in 2021 on the sentiment of meme stock investors helped the company raise capital. It rose from penny-stock levels in the fall of 2021 to a high of almost $73 per share nearly one year ago.
Still, it has failed to sustain its rallies and sells for around $14 per share as of this writing. The price action indicates that investors have not warmed to the idea of making AMC the Berkshire Hathaway of movie theaters. Unless the leadership can demonstrate Buffett-like investment savvy, stockholders will likely continue to question this particular move.
The state of AMC
Due to the popularity of Top Gun: Maverick, AMC can thank Tom Cruise today. Unfortunately, the upcoming quarter will likely not match the revenue, earnings, and attendance figures to which the company had become accustomed before the pandemic. Moreover, this inclination to invest in unrelated industries indicates that even AMC may not believe in the movie theater industry. This negative sentiment probably does not bode well for its stock.
