Avengers: Endgame has shattered virtually every box office record with the elusive worldwide top grosser, Avatar in its sights. Avengers: Endgame and its unheard of box office numbers came on the heels of Captain Marvel which initially pumped life back into the domestic box office, delivering an epic $153 million opening weekend debut, while hauling in $455 million worldwide. AMC Entertainment Holdings (AMC) stands to benefit significantly across its business segments due to the popularity of the Marvel franchise and a robust slate of movies for the remainder of 2019. AMC will likely have a nice catalyst as the slate of 2019 movies roll out and the box office numbers strengthen over the next nine months. To smooth out these box office revenue fluctuations, AMC has a rapidly growing loyalty program with over 800,000 members to evolve a large segment of its business mix towards a subscription based model. This will allow durable and predictable revenue streams in the backdrop of changing box office dynamics. AMC offers a great dividend yield of over 5% and accelerating revenue and EPS growth. The company is reengaging the consumer via digital, mobile and loyalty program options, reformatting theaters to enhance the user experience and international expansion augmented by a healthy share buyback program. The stock looks very attractive considering its depressed valuation, solid Q1 earnings and company initiatives to drive the consumer experience. The long term growth narrative remains intact while revenue continues to grow at a healthy clip with a health 9-month movie slate ahead for the remainder of 2019.
Impressive Back-to-Back Quarterly Numbers:
AMC has been firing on all segments of its business on improving fundamentals across the entire enterprise over the previous two quarters. For Q4 2018, AMC beat on both the top and bottom line with EPS beating by $0.22 and revenue beating by $10 million. Q4 attendance in the U.S. set a record for the fourth quarter and coupled with the quarterly numbers, the stock popped 10%. Q1 2019, historically its weakest quarter was going against a very tough comparable year ago quarter that included Black Panther. Considering this tough year-over-year comparable, attendance per screen declined 10.1% and total attendance was down 12.2% year-over-year. However food and beverage per attendee came in at a record for Q1. Taken together, revenue was down 13% at $1.2 billion however this beat consensus estimates by $10 million.
Looking ahead, AMC expects better traffic. "We have high expectations for 2019, due to an extraordinary slate of movies coming, the timing of releases within the film slate suggests that it will be a back-end loaded year," says CEO Adam Aron.
“Even with the anticipated slow start to the year, we have been and continue to be quite bullish about the full year prospects for AMC. In addition, the first quarter of 2019 faced a tough year-over-year comparison, as Black Panther last year made the first quarter of 2018 the second highest grossing first quarter of all time. As we thought was likely for our U.S. theatres, in our largest market by far, the U.S. industry box office declined a healthy 16.2% this quarter. Even so, we are comforted that AMC continued to outperform the U.S. industry box office, notably with domestic attendance per screen declining only 10.1% in the first quarter of 2019. Additionally, our U.S. food and beverage capture of $5.23 per patron set a new first quarter record for our company. This all is largely attributable to the power of the AMC platform: stemming from experiential initiatives and enhancements at our theatres; a frictionless use of technology to communicate, engage and sell to our guests; combined with the soaring popularity of our AMC Stubs loyalty program and our AMC Stubs A-List subscription program.”
“Accordingly, we continue to be excited about the remainder of 2019, which we believe might be the highest grossing 9-month period in cinema history. We are optimistic that the full year 2019 box office will be at least as strong as 2018, and potentially could be the first year ever that the domestic box office breaks $12 billion.”
Adam Aron, CEO and President of AMC
It’s noteworthy to point out that the full year of 2018, the U.S. box office was up 6.9% to $11.9 billion, marking the highest grossing year ever recorded with February, April, June, and October setting all-time box office monthly records. Given the slate of movies over the next 9-month period, AMC thinks it’s entirely possible to eclipse the full year 2018 numbers.
2019 Box Office Comes Alive:
Disney (DIS) has finally released its first highly anticipated film of 2019 with Captain Marvel (the first female lead for a Marvel film). The film has performed exceptionally well, delivering an opening weekend box office gross of $457 million worldwide and $153 million domestically. The first two months of the year for the domestic box office has been a struggle relative to 2018. Captain Marvel brought in the third highest March opening of all-time and places the film on par with past blockbusters such as The Dark Knight, The Hunger Games and Rouge One. On the heels of Captain Marvel was of course the elephant in the room, Avengers: Endgame which shattered nearly ever record at the box office and aiming to take out Avatar as the highest grossing movie of all-time (Figure 1). Avengers: Endgame has generated $780 million at the domestic box office and $2.62 billion worldwide. On the domestic front, the film stands as the second highest grossing film behind Star Wars: The Force Awakens with $936.6 million. On the international front, the film currently stands in a close second behind Avatar with $2.788 billion. Disney alone has Aladdin, Toy Story 4, Lion King, Frozen 2 and Star Wars Episode 9 in its slate of films that will bode well for the box office on the domestic front as these films stand to rack in billions in box office receipts.
Figure 1 – Avengers: Endgame shattered nearly every box office record domestically and internationally
AMC’s loyalty program now has over 800,000 subscribers which is expected to generate more than $150 million of annual recurring revenue. This will provide further penetration on the revenue front in excess of $300 million when factoring in food and beverage purchases and full fare tickets purchased by bring-along guests such as family and friends. The loyalty program provides an opportunity to shift a segment of its business mix to a subscription-based model, providing durable and predicable revenue streams, mitigating box office fluctuations and driving long-term customer loyalty. Under this ticket subscription program, members can attend up to three movies per week in every available show time and format. These membership numbers far exceed the company’s goal of 500,000 by mid-June 2019.
Due in large part to the loyalty program, B. Riley FBR upgraded shares of AMC to a buy. Summer is coming and "The impressive advance ticket sales for Avengers: Endgame signals the start of the spring/summer period and we are increasingly optimistic around the potential contribution of Stubs A-List," analyst Eric Wold says. The company will keep maximizing the attractiveness of the subscription plan "as well as the efficiency/profitability of the plan to the company." The firm raised its price target to $20 from $18.
Avengers: Endgame provided a much needed jolt to start off the remaining 9-month period to close out 2019. AMC is optimistic that the strong slate of movies coming out over the next 9 months may propel the year end box office numbers to eclipse the record numbers seen in 2018. AMC is sitting on a host of positive tailwinds despite the slow start to the 2019 box office numbers domestically. A large slate of movies is just now beginning to be released with Captain Marvel and Avengers: Endgame. AMC is reengaging the consumer via digital, mobile and loyalty program options, reformatting theaters to enhance the user experience and international expansion. The loyalty program now has over 800,000 members and provides an opportunity to shift a segment of its business mix to a subscription-based model, providing durable and predicable revenue streams, mitigating box office fluctuations and driving long-term customer loyalty. The stock is a compelling buy with a dividend yield of over 5% and accelerating revenue and EPS growth. The stock looks very attractive considering its depressed valuation, industry strength forecasted through 2019 coupled with a slew of company initiatives to drive the consumer experience.
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