For the first time in a long time, AMC Entertainment (NYSE:AMC) had a winning week in the markets, gaining nearly 16% for the week ending Oct. 6. Given its shares have lost more than 85% of their value over the past year, it’s much-needed relief for AMC stock.
Driving AMC’s recent bullishness was the Oct. 2 joint announcement by AMC and Parkwood Entertainment, Beyoncé’s film and production company, that “Renaissance: A Film by Beyoncé” would hit North American movie theatres on Dec. 1.
“[The film] chronicles her intention, hard work as creative and producer, and her process in mastering her craft to execute the 56-performance, 39-city, record-breaking RENAISSANCE WORLD TOUR,” stated the Oct. 2 press release.
Following the success of the concert film “Taylor Swift: The Eras Tour,” which generated more than $100 million in pre-release ticket sales, hitting theatres on Oct. 13, AMC shareholders are hoping that lightning strikes for a second time. If that wish comes true, it could generate much-needed box office ticket sales for the beleaguered movie business.
While millions will see Beyoncé’s film, the music superstar is the one who benefits the most from such an arrangement, not AMC.
If you think Beyoncé is going to save AMC stock, think again. If you bought your stock recently and are in the black on your trade, I strongly suggest you sell and take profits while you still can.
AMC is going down. Here’s why.
The Problem With AMC Stock
It’s been a while since I last covered AMC — 16 months. At the time, AMC was riding high thanks to Tom Cruise’s “Top Gun: Maverick” film setting box office records over Memorial Day weekend. Of the nearly four million tickets it sold at AMC theatres over last year’s end-of-May holiday weekend, 3.3 million were for the “Top Gun” sequel.
I understand the excitement for the film’s release. However, as I said, the boffo box office couldn’t save AMC stock. It dipped below $100 toward the end of August 2022 and has been pretty much downhill ever since.
There is no mystery behind AMC stock’s fall from grace. It’s a business that’s done very little to grow its revenues beyond the meat-and-potatoes film exhibition business. Plus, it carries a tremendous amount of debt that it will never get rid of without some legitimate business plan.
InvestorPlace’s Chris MacDonald recently stated he believes AMC’s business model is broken. I couldn’t agree more. It’s been broken since before Adam Aron took over as CEO in December 2015.
It’s Not Rocket Science
The movie theatre business is a low-margin business. It is simple. You make money in three ways: ticket sales, concessions and in-theatre advertising. That’s pretty much it.
In Q2 2023, its revenues were $744.1 million from ticket sales, $488.2 million from concessions and $115.6 million in other theatre revenue, which includes in-theatre advertising, theatre rental and other miscellaneous stuff.
That’s $1.35 billion, 15.6% higher than a year earlier. Revenues increased due to a 12.2% increase in attendance and a 1.8% increase in average ticket price. Those need to keep moving higher each quarter year-over-year. It’s not rocket science.
Its food and beverage revenue increased by 28% in the quarter. The higher attendance and a 9.7% increase in food and beverage per patron — $7.36 in Q2023 vs. $6.71 in Q2 2022 — delivered the gains.
As for other theatre revenue, it increased by 8%.
So, there are two numbers to pay attention to each quarter: average ticket price per patron (defined as admissions revenue divided by attendance) and average food and beverage per patron (food and beverage revenue divided by attendance).
Even if attendance is down, higher food, beverage and ticket prices can deliver higher year-over-year averages per patron.
That’s how you run a movie theatre business.
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.