Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Can AMC (AMC) Survive Coronavirus?

AMC Entertainment Holdings Inc. (NYSE: AMC) is one of today’s most popular contrarian investments.

On 25 March 2021, Investorplace claimed AMC (AMC) was one of the 10 top trending stocks on Reddit. Investorplace estimates Reddit interest in AMC grew 20% when Disney (DIS) announced plans to release two major movies in theaters.

To explain, Disney could finally release the Marvel blockbuster Black Widow in theaters and on Disney+ on 9 July 2021. Disney hopes to release Cruella through the same sources on 28 May 2021, Barrons reports.

AMC (NYSE: AMC) operated 959 movie theaters worldwide in 2020, Statista estimates. That number is down from 1,004 in 2019 and a peak of 1,014 in 2017.

Why AMC is Trending on Reddit

Investors hope enough people will return to movie theaters to this summer to boost AMC’s profits.

When they are operating, movie theaters can make enormous amounts of money. By the Numbers estimates the US box office at $11.255 billion for 2020. However, that box office fell to $2.051 billion in 2020, but the US Box office rose to $966.033 million in 2021.

Similarly, the number of movie tickets sold in the United States fell from 1.229 billion in 2019 to 223.869 million in 2020, By the Numbers estimates. Theaters have sold 105.462 million tickets so far in 2021. The average American movie ticket price in 2021 was $9.16. 

Moreover, the number of major studio movie releases fell from 87 in 2019 to 34 in 2020, By the Numbers estimates. The number of major studio releases could rise to 61 in 2021.

Comparatively, Statista estimates US and Canadian movie theaters sold 1.239 billion tickets in 2019. That number fell to 223.86 million in 2020.

Can Vaccines save the Movies?

I think the Reddit crowd believes the box office could recover to something close to its 2019 level if COVID-19 vaccination effort succeeds.

They had vaccinated 97.6 million Americans or 29.4% of the total US population on 31 March 2021, The Washington Post estimates. Similarly, The Post estimates The number of reported coronavirus cases in the US fell from 225,277 on 12 January 2021 to 64,252 on 31 March 2021.

Thus it appears the vaccination effort is succeeding and the amount of coronavirus is shrinking. Moreover, the vaccines appear to work.

One shot of the Pfizer-BioNTech and Moderna (NASDAQ: MRNA) vaccines reduced the risk of coronavirus infection by 80%, the Centers for Disease and Control Prevention (CDC) estimates. The second shot of those vaccines reduced coronavirus infection risks by 90%, The Washington Post reports.

Who will return to the Movies?

The good news for AMC (AMC) is tens of millions of Americans becoming coronavirus resistant and capable of going to the movies.

The bad news for AMC is that the US Food & Drug Administration (FDA) has not approved vaccines for people under 16 yet. In, the FDA does not allow the vaccines for people under 18.

That’s bad because families with children and teenagers are important movie customers. A grave danger for AMC is that there will be a generation of Americans who do not get into the movie-going habit. Can theaters survive if there’s an entire generation of teenagers and twenty-somethings who never think of movies for date night?

However, scientists are testing the vaccines in kids. For instance, Pfizer (NYSE: PFE) is testing the BiBioNTech (NASDAQ: BNTX) vaccine on nine-year-old girls at Duke University, The Mercury News reports. Stanford University will test the vaccines on children between six months and 11 years in age. Tests of the Johnson & Johnson vaccine in kids are planned and they are testing the AstraZeneca in kids overseas.

Unfortunately, the results of the vaccine tests in kids will not be available for months. Thus, children could not return to the movies until 2022. Hence, I think the box office will never return to the 2019 levels.

Does AMC Entertainment (AMC) Make Money?

AMC Entertainment (AMC) lost money in 2020. AMC’s quarterly operating income fell from $43.40 million on 31 December 2020 to -$969.60 million on 31 December 2021.

Similarly, AMC’s quarterly gross profit fell from $939.60 million on 31 December 2019 to $116.20 million on 31 December 2020. Overall, AMC’s quarterly revenues fell from $1.447 billion on 31 December 2019 to $162.60 million on 31 December 2020.

Dramatically, Stockrow estimates that AMC’s revenue growth rate fell by -88% in the quarter ending on 31 December 2020. That rate fell from 2.43% in the quarter ending on 31 December 2019.

How Much Money Does AMC (AMC) lose?

Notably, AMC’s quarterly operating cash flow fell from $368.80 million on 31 December 2019 to -$357.90 million on 31 December 2020. Similarly, the quarterly ending cash flow fell from $164.90 million on 31 December 2019 to -$107.40 million on 31 December 2020.

Predictably, AMC had to borrow money to survive. AMC’s cash from financing went from -$40 million on 31 December 2019 to $247.80 million on 31 December 2020. AMC’s total debt grew from $4.843 billion on 31 December 2019 to $5.799 billion a year later.

Similarly, the value of AMC’s Total assets fell from $13.676 billion on 31 December 2019 to $10.276 billion on 31 December 2020. However, AMC’s cash and short-term assets grew from $275.50 million on 31 December 2019 to $321.4 million on 31 December 2020.

What Value Does AMC (AMC) Have?

The value of AMC (NYSE: AMC) stock has grown dramatically. Mr. Market paid $3.04 for AMC on 30 March 2020 and $10.21 on 31 March 2021.

I think Mr. Market fairly priced AMC at $10.21 on 31 March 2021. However, I think AMC is a company in deep trouble with a terrible stock. I advise investors to avoid AMC because I am not sure this company can survive and if theaters will recover.

My prediction is a major entertainment conglomerate such as Disney (D) could buy AMC to save it and keep the theaters open. Under those circumstances, I advise investors to ignore Reddit and avoid AMC because this company could die soon.