Just as AMC Entertainment (NYSE:AMC) fell into the single digits recently, the streaming service announcement may get the stock back to $10+.
On Oct. 15, AMC announced 'AMC Theatres on Demand' to compete with the likes of Netflix and Hulu. The library will have a modest but meaningful movie selection. The nearly 2,000 movies will be available for rent or purchase to AMC Stubs members.
This offering, on http://AMCTheatres.com, is a good idea. Not only does it increase the value of having a Stubs membership but it is another way to monetize the user base. Customers all have mobile devices, smart TVs and connected devices to stream the content.
So by pitching the service to 20 million Stubs subscribers, the extra revenue from it may grow very quickly. The rental cost is cheap: $3 - $6 per movie. Buying a move will be between $10 - $20.
The service is also a win for Sony (NYSE:SNE), Disney (NYSE:DIS), Warner Brothers, owned by AT&T (NYSE:T), and Paramount. These firms, plus AMC, will enjoy the profit margins should the service have strong demand.
With a market capitalization of under $1 billion, AMC stock is weighed down by its debt. But cash flow is healthy and debt maturities are manageable. AMC spent more on operating expenses in the last few years to upgrade theatres. That should drive movie attendance.
Note: I own shares of AMC.
