The theater operator looks like it has enough money to survive, but movie studios could undercut its recovery efforts.
With AMC Entertainment (NYSE:AMC) reporting fourth-quarter results that,while ugly, were still better than what Wall Street expected, now is a good time to look at where the theater operator could end up this time next year.
The earnings themselves aren't especially helpful, since it mostly had no business, no revenue, and mounting losses, but the report does provide clues about where AMC is heading and what investors can expect.
Awaiting the grand reopening
AMC's operations were obviously crushed by the COVID-19 pandemic and the strict limitations imposed on movie theaters. But the fact it was able to generate $162 million in revenue even though only 67% of its theaters were open and operating at just 20% to 40% capacity indicates there is still substantial demand for the big-screen experience.
AMC said some 8 million people visited its cinemas globally (the international situation was even worse, with only 30% of its theaters open), which is just a fraction of pre-pandemic levels but not bad when fighting for survival.
And on that front, AMC should indeed survive, and could even thrive as a sense of normalcy returns to our everyday activities. A few states are allowing businesses to reopen without restrictions now. Other states are moving more slowly but could end up following suit as the pandemic comes under control.
Setting the stage
Movies will be returning to the theaters this year, too. Studios that delayed releasing their films until theaters were mostly up and running again will now do so over the coming months, including a number of much-anticipated potential blockbusters.
CEO Adam Aron said, "We look forward to returning to an environment of unfettered movie theater access for our guests, and we are eager to showcase the sizable and widely anticipated slate of new films that our studio partners have to offer."
Long-delayed titles including superhero flicks such as Spider-Man: No Way Home and Black Widow are due to appear later this year, as are sci-fi films likeDuneand action movies such as the new James Bond title No Time to Die.
Split decision
Tempering the enthusiasm for their release, however, is that many films will now also be released either to on-demand streaming services only or will simultaneously appear in theaters and on streaming.
Disney (NYSE:DIS) was originally supposed to release the children's movie Raya and the Last Dragon into theaters last November. It got moved to mid-March and became a day-and-date release to theaters and Disney+ as a premium offering, similar to how the company madeMulanavailable last year.
Yet the reception it received was lukewarm at best. While AMC carried the movie,Cinemark (NYSE:CNK), the country's third-largest theater chain,refused to show it (presumably because of the release to Disney+, which undercuts the ability of theaters to generate revenue at a particularly vulnerable moment).
The film only generated around $8 million from the 2,400 or so theaters it was shown in on its opening weekend (no word on how much Disney generated from the pay-per-view showing), which suggests there could still be hiccups for theaters along the way.
A financial shipwreck
Yet as Aron detailed in AMC's earning release, the theater operator has taken sufficient steps financially to shore up its ledger sheet to make it through the rest of the year.
AMC raised approximately $2.2 billion in new debt and equity capital, secured more than $1 billion in concessions from creditors and landlords, sold over $80 million in assets, and was able to convert $600 million worth of debt into equity. It now has $1 billion in cash on hand.
That should be sufficient capital to keep its theaters operating until the industry gets back on its feet and a steady stream of movies is once again filling screens, but all that restructuring has left AMC's financial situation in much worse shape.
Fortunately, the bills won't come due for a few years yet, but the theater chain still needs to prove the new normal for Hollywood is one where it can be profitable. Investors would be better off waiting for a sign that's possible and consumers actually wantto return en masse before diving in.