The No. 1 exhibitor’s stock has now fallen more than 25% from its 52-week high in mid-September, closing today at $15.66 on triple its normal trading volume despite positive momentum for U.S. box office of late. After yesterday’s close, AMC reported third-quarter revenue of $1.22 billion, meeting Wall Street estimates, but its loss of 82 cents per share fell well short of forecasts of 47 cents in the red.
CEO Adam Aron acknowledged a unique challenge of communicating the company’s narrative during the company’s conference call with analysts to discuss the results: The call overlapped with that of the Walt Disney Co., which was also reporting numbers. That meant only a handful of attendees and questions, with many investors left to read through the transcript and catch up with the financials later, possibly allowing for misinterpretation.
Stubs A-List, the company’s fast-growing subscription service, dominated the call — so much so that Aron noted the fixation toward the end of the Q&A. And while he dubbed it a “runaway success” and a “smash hit,” Aron is well aware of the inevitable associations with MoviePass, that wild child of subscription moviegoing, which was once viewed as a disruptor with Uber-like potential and is now seen as a symbol of mismanagement and tech-world myopia.
“While you guys have asked a lot of A-List questions, the fact that we can answer them, I hope you are noticing, we really do know this program cold, we know these numbers cold,” he said. “We’re watching them like a hawk.” Some of the key stats from AMC’s view: A-List is way ahead of schedule, reaching 500,000 subscribers after just five months. Also, 27% of its members are under 30, and overall use is now declining from 3.4 uses in the first month of membership to 2.8 in the second. (AMC’s target level is 2.5 times a month.) Total A-List admissions represent just 10% of AMC’s total, but it’s a meaningful slice. Including stimulation of concession sales, Aron predicts an annual run rate of $120 million in revenue attributable to A-List.
So, what’s not to like? Simply put, some investors may be spooked by the ignominious run of MoviePass. The unit of Helios and Matheson Analytics, after a meteoric rise in late 2017 and early this year, fell into a legal and financial abyss due to a high cash burn rate, tech glitches and pricing overhauls that sent some customers fleeing at the peak of summer blockbuster season. While MoviePass is still a going concern in a reduced form, Helios stock trades at less than two cents a share and the New York Attorney General’s Office is investigating whether it misled investors.
While he never mentioned MoviePass by name and comparisons are not completely apt given the vastly different financial footings of the two companies, Aron appeared to point to its struggles on the call. “As others have sadly demonstrated to their peril, getting volume at unacceptable prices is a blunder,” he said. “AMC does not intend to repeat their mistakes. Sustainability is important to us and crucial to our members because they want A-List to prosper and to offer consumers real value for years to come.”
One point of difference is that AMC is offering to lock in rates for 12 months for any customer who signs up for A-List before January. This guarantee in part is aimed at heading off concerns about price hikes in 2019 for larger markets, which will take the monthly fixed-price plan to $24 a month in the largest cities.
Analyst Erik Handler of MKM Partners, who has a neutral rating on AMC’s stock, considers A-List one of the positives for the company. He sees other concerns more pressing, such as cash flow and capital expenditures on new theaters. The circuit is also going through an ownership change, with China’s Wanda trimming its stake and private equity firm Silver Lake putting in $600 million and getting a big say in the company’s strategy.
“We remain cautious towards AMC as a result of what we see as an over-leveraged balance sheet with limited financial flexibility,” Handler wrote in a note to clients. “That said, AMC’s U.S. circuit exceeded our 3Q forecasts which fueled consolidated EBITDA upside. More importantly, heightened fears about A-List proved unfounded as management stated with subscribers ahead of expectations and average usage on the decline, the subscription service should be profitable in 2019, a full year ahead of initial projections.”
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