It Ain’t Over Till the Credits Roll

After coming back from near-bankruptcy, AMC Entertainment Holdings ($AMC) is not as strong as ever. As a matter of fact, they’ve never been weaker. After being closed for nearly 5 months, AMC opened 70% of its movie theaters this weekend with the launch of Christopher Nolan’s long-awaited “Tenet”.

Back from near-death

With theaters shut down, AMC and other big movie theater companies saw their revenues drop over 98% in the second quarter of 2020. If losing nearly all your sales isn’t bad enough, the company barely escaped bankruptcy death. On Aug. 3, AMC successfully renegotiated with loan holders to convert a portion of their debt into equity. Additionally, they were given access of up to $415m in cash, giving them enough money to last through 2021. AMC may be alive for now but they’re running on borrowed money:

• Consumed by debt… In the second quarter, AMC paid over $81m in interest payments to maintain its massive debt balance of over $5b.
• Lack of sales… It’s unclear how many customers are willing to go back to theaters. In a survey by Morning Consult, 23% said they were likely to go to a movie theater in September.

Future of movie theaters

The biggest uncertainty for theaters is whether consumers are willing to go back to theaters with COVID around. Theaters are also taking a risk by letting customers through the door. A potential COVID outbreak could shut theaters down again, which is just one of their many problems…

• Hollywood shutdowns… COVID halted most movie productions and if studios are releasing fewer movies, customers will have fewer reasons to visit theaters.
• Streaming wars… Disney opted to release Mulan through its streaming platform, Disney+. If the launch is successful, we could see more and more movies opt-out of movie theater releases.

The Verdict: Don’t stay for the end credits

If you’re looking for a strong investment, there’s nothing to see here. Movie theater revenues have been declining over the past couple of years and theaters have been forced to take on unsustainable amounts of debt to survive. Theater traffic will likely take years to return to pre-COVID levels… if they ever return to those levels.