EC AMC Foolishness Comes At A Dear Cost

Based on data from The Numbers, the situation is dire for movie theaters. For example, the current hit Black Widow’s has brought in about $167 million in box office revenue. In 2019, for comparison, Avengers: Endgame hit $357 million in its best weekend.

The graph below shows how movie ticket sales are only slowly rebounding.

AMC, AMC Foolishness Comes At A Dear Cost

AMC Is Not Dead

While we paint a grim picture of AMC, it is not dead. The movie producers need the theaters and will keep them alive. This is evident in their support for AMC and other theaters. For example, AMC now receives some of the streaming profits from movie studios.

Per CNBC- “What we learned during the pandemic is that it is not easy to replace all that lost theatrical window revenue,” said Eric Handler, media and entertainment analyst at MKM Partners. “That feeds a lot of downstream revenue opportunities. There will be changes to the model, but I still think theatrical is something that will remain.”

From a macroeconomic perspective, we are irrelevant whether AMC survives or goes bankrupt. What we are concerned about is how much capital is being misallocated to AMC.

Gross Misallocation

The graph below shows that AMC’s market cap or valuation has recently fallen from $25 billion to $18 billion. Currently, at $18 billion its market cap is about six times its pre-pandemic level.

AMC, AMC Foolishness Comes At A Dear Cost

Given the pandemic related losses and new habits of movie viewers, should the market cap be higher than it was in prior years? NO! It doesn’t matter what we think. AMC has become a popular meme stock and investors seem willing to use their precious capital to chase it well above prior valuations.

Speculators do not consider AMC’s balance sheet, income statement, or prospects. Instead, they solely focus on whether it will go up or not.

What if the $18 billion of capital was instead allocated toward something productive? Imagine if AMC investors focused on cancer research, space exploration, nano technologies, or other productive ventures. Now consider it’s not just AMC. Zombies are all over the place and sucking up capital that could be used to more productive means.

China Gets The Joke

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William K. 2 months ago Member's comment

Sorry Folks, I am rather more in favor of "Natural Selection"in business and life. This includes credit at some interest rate so that gambling is not cheap. Just because somebody has an idea does not mean that it is a good idea, Poor ideas fail, and poorly managed good ideas fail also. Nature is brutal and non-forgiving of poor choices.

And the Federal Reserve club has done what they can think of to support that alternative approach of helping their friends on Wall Street, with no regard for the rest of the population.

Dick Kaplan 2 months ago Member's comment

Good read, thanks.