Star Wars: The Force Awakens continues to break box office records every day, beating even some of Wall Street’s most bullish forecasts. Yet stocks for exhibition companies are…down?
Strangely, yes. Regal, AMC Entertainment, Carmike, Cinemark, and Imax are trailing the overall market so far this week. All of are down today except Regal which is up 0.9% — less than the benchmark Standard & Poor’s 500 which is +1.2%.
And Imax and AMC — exhibition companies expected to benefit most from Star Wars — are among the biggest decliners in media today, and over the last three days. The film broke sales records for Imax, with its premium priced tickets. Yet the company known for its supersized screens is off 1.8% in afternoon trading, and -5% so far this week. AMC, the biggest owner of Imax and high-grossing urban venues, is down 4.0% today and -4.8% since trading opened on Monday.
You might think that Wall Street has been relocated to Superman’s Bizarro World, where everything is backward. But there’s an explanation.
In part, we’re seeing investors follow a well known strategy: Buy on the rumor, and sell on the news. Some options traders and others who bought exhibition shares ahead of the Disney release figure that the companies’ stories may not get better than this.
There’s a lingering concern that Star Wars sales might fade more quickly than bullish analysts anticipate: Lots of fans were eager to see the film quickly to be in on the national conversation, and avoid spoilers.
Star Wars‘ extraordinary sales also fuel a concern that theater company profit margins will suffer as consumers see fewer movies but flock to a few mega-hits.
Even with the sci-fi action film’s success, box office sales in in Q4 probably will fall short of analysts’ earlier expectation of an 11% rise vs the same period last year. That still looks like a stretch after releases including Spectre,The Hunger Games: Mockingjay – Part 2, Good Dinosaur, Steve Jobs, and The Night Before missed the Street’s targets.
Knowing that Star Wars would be a must-have film, “Disney likely requested (demanded) a much higher-than-average film rent split” from exhibitors, B. Riley & Co’s Eric Wold says. If the trend continues where fewer films dominate box office sales then “we could see average film rent expenses push higher” — driving theater profit margins down.
He still thinks that investors who unload exhibition shares are missing out: Company profits should be fine as they benefit from additional, and highly lucrative, concessions sales as well as premium priced tickets to Imax and other large screen venues.