When AMC Entertainment (NYSE:AMC) posted a 98.7% drop in revenue in the second quarter and lost $5.38 a share (GAAP EPS), investors sent the stock to over $5.00. Before that, AMC hovered in the $4.00 range. What changed last week?
The U.S. courts decided to remove the decades-old restrictions on theatrical chain ownership. The archaic rules change is necessary. AMC, Cineplex (TSX:CGX), and Cinemark are bleeding money as people stay at home, work from home, and avoid the theatre.
Eventually, the trend of watching movies at home and saving some money will swing the other way. Just as people shop at supermarkets and avoid restaurants, for now, trends reverse. People get tired of cooking and eating at home and will go to restaurants.
Similarly, movie-goers will want to watch the latest and hottest blockbuster movie. Studios need theatres to maximize revenue from such releases.
AMC did an incredibly good job minimizing costs by cutting management staff, re-negotiating leases, and refinancing debt. The $18.9 million in revenue in the quarter, despite theatre closures in the US, is an accomplishment. If studios buy AMC currently, they could pay double or triple the enterprise value and still come out ahead.
Once theatres re-open, attendance will rebound slowly and then quickly. AMC worked a deal with Clorox to maximize disinfections. And if Disney or Apple buy AMC next, everyone wins.
