Why Did Movie Theater Stocks (AMC, RGC) Jump Today?

Shares of movie theater giants AMC Entertainment Holdings AMC and Regal Entertainment Group RGC surged on Monday as investors decided to hop back on these two stocks while they rest near their 52-week lows.

Shifting consumer habits have hurt the movie theater industry as a whole, which has helped send companies like AMC, Regal, Cinemark Holdings CNK, and Imax IMAX reeling recently. Making matters worse, streaming giants and video on demand powers such as Amazon AMZN, Netflix NFLX, Hulu, and HBO offer more content than ever before.

On top of this, Hollywood has seemingly failed to hold up its end of the bargain, as box office numbers have tumbled so far this year. AMC’s CEO even called out of Hollywood for its lack of great films in 2017 in the company’s Q3 earnings report last week.

However, even with all of this negative headwind, AMC still reported a 51% year-over-year revenue surge to hit $1.18 billion in Q3. The movie theater chain’s sales rose in two major categories as well, with admissions revenues jumping nearly 52% and food and beverage sales popping 45.2%.

Nevertheless, AMC shares tanked as the company posted a $42.7 million third-quarter loss, which looked even more miserable compared to the $30.4 million profit it posted in the year-ago period. This big loss was due in large part to the massive overhead that theaters carry, and when people don’t show up, even major ticket price hikes aren’t able to prop up bottom lines.

In an effort to ensure their survival—though the movie theater industry isn’t likely to simply die out overnight—movie theater companies have had to get creative and find new revenues streams, with AMC, Regal, and others announcing new ideas recently.

Recent Innovations 

In the same vein as Netflix, AMC plans to make movies that are no longer in theaters available for streaming through a new online rental option. On top of that, AMC is also set to experiment with demand-based pricing, which would see moviegoers pay more for box office hits and Friday night shows than a dud on Tuesday.

Starting in 2018, AMC will also begin to sell merchandise related to movies in 35 theaters. This could become particularly profitable for children’s movies, comic-booked based offerings, and historic franchises. AMC could even perhaps expand to selling books or comics that current movies are based on.

“In a venue where you would think the enthusiasm would be highest in a movie theater on your way out the door, we do nothing,” AMC CEO Adam Aron said on a conference call last week. “We’re going to try it.”

In an effort to bring in more revenue, Cinemark will reportedly begin to test a subscription service. The idea is said to be similar to MoviePass, which offers people the chance to pay less than $10 a month to go to any movie at any theater on any day—though only some theaters have opted into this monthly service—and has the potential to grow rapidly and eventually lead to a Netflix-style subscription model for movie theaters. 

Bottom Line

Shares of AMC popped almost 6% on Monday, while Regal saw its stock price climb 3.71%. Cinemark shares gained 0.77%. All three of these U.S. movie theater companies are currently Zacks Rank #3 (Hold) stocks.

It seems that investors are buying the movie theater dip on the chance that some big changes, along with quickly shifting consumer habits, might help the industry remain viable for years to come.

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Regal Entertainment Group (RGC) : Free Stock Analysis Report
 
Cinemark Holdings Inc (CNK) : Free Stock Analysis Report
 
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
 
Imax Corporation (IMAX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
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