AMC Entertainment Holdings, Inc. (NYSE:AMC) is expected to produce free cash flow by earliest in 2024.
The bullish news comes from senior analyst Eric Wold who says the movie theatre chain could see free cash flow by earliest in 2024 or 2025.
The short thesis is dissipating as the entertainment industry becomes more trusting of the success they’re having with traditional cinema over online streaming platforms such as Netflix or Hulu.
“What we saw during the pandemic is a lot of studios experiment with different options releasing films straight to streaming platforms, releasing them simultaneously in theatres and streaming, and what worked the best was releasing straight to theatres,” said the B. Riley Securities Senior Analyst on Yahoo Finance.
AMC Entertainment had $579,000 of operating cash flow in 2019 and $60,900 in free cash flow, pre-pandemic.
During the lockdowns AMC posted -$1,129,500 in negative operating cashflow but number figures improved in 2021 to -$614,100.
Last year’s numbers have yet to be updated.
If AMC Entertainment is able to continue riding the wave until it produces free cash flow, the short thesis will get completely decimated, forcing short sellers to close majority of their positions in the company.
The biggest issue movie theatres are facing is lack of movie titles
Senior Analyst Eric Wold says the biggest issue the movie theatre industry is currently facing is “the lack of content”.
“We’ve seen consumers come back to the theatres when there’s big quality films. Three of the ten top films of all time have been released in the theatres since the pandemic, so there is currently content attracting consumers. The problem is last year there were 50% less films released in theatres than there were in 2019.”
And he’s not wrong.
CEO Adam Aron said last year that movie theatres are in need of more movie titles, stating they’re not showing enough.
Coincidentally, Bloomberg news reported Amazon plans to invest billions of dollars in the movie industry, according to people familiar with the matter.
The world’s largest online retailer aims to make between 12 and 15 movies annually that will get a theatrical release.
Amazon is still sorting out this strategy said people who asked not to be identified.
That number of releases puts Amazon on par with major studios such as Paramount Pictures.
CNBC weighs in on traditional movie theatres vs online streaming
In October, AMC announced its first ever Netflix showing in 200 theatres.
Glass Onion: A Knives Out Mystery starring Daniel Craig was released in the U.S. as well as the UK, Ireland, Italy, Germany, and Spain.
Box office analysts say Glass Onion could have earned much higher earnings if Netflix had opted for a traditional wide release of 2,000 to 4,000 theaters.
The film earned $15 million at the box office but CNBC says the showing could have made $200 million if it had been kept in theatres longer.
CNBC stated, “Netflix has backtracked on its previous policies, including by introducing an ad-supported subscription option, leading many to wonder whether the company should rethink its resistance to the traditional Hollywood movie release model as it looks for new ways to grow revenue.“
So, is the short thesis coming to an end?
The industry certainly seems to be weeding out this Wall Street thesis.
However, it will be up to AMC to produce free cash flow to claim its power back.
I’d love to hear your thoughts on this.
Feel free to leave a comment down below.
Additional source(s): Yahoo Finance
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