AMC: The bad news is getting worse (NYSE: AMC)

One of the names hardest hit by the coronavirus has been cinema chain operator AMC Entertainment (CMA). As you’d expect, revenues are being crushed this year due to theater closures and consumers staying home, resulting in massive losses and cash burn. On Thursday, major news broke in this space that will only make things worse for this company over the next two quarters.

AMC shares fell on Thursday following the news that AT&T (J) The Warner Brothers division sends all of its 2021 movies to HBO Max. The slate of 17 films will land on HBO Max for a one-month window starting the same day they hit US theaters. HBO Max is only available in the US, which means international theatrical releases will continue as usual. While Warner Brothers says it’s a one-year move due to the unique pandemic situation, who knows if this could be a lasting change.

Obviously, this news is not good for movie chains like AMC. While the distribution of a coronavirus vaccine is coming and it will help, it will certainly take time. We are seeing cases, hospitalizations and deaths reaching new highs in the United States right now, and the winter is going to be harsh. Last year, AMC brought in more than $5.47 billion in revenue, but analyst estimates below show the company isn’t even expected to return to that level by 2024. Those numbers predated the Thursday news, so you can understand that the street is likely to revise. some of these numbers will decrease in the coming weeks.

(Source: Seeking Alpha AMC estimates page, seen here)

We must also ask ourselves about the structural changes that continue to shape this industry as we move forward. Streaming giants like Netflix (NFLX) have already invaded many consumer salons, with this name potentially exceeding 200 million global subscribers this quarter. Amazon (AMZN) Prime is also making a big push to stay home, while tech giant Apple (AAPL) is try to diversify of the iPhone and that means a big push of services. You can certainly make the most of the theatrical experience available in your living room for a fraction of the price.

AMC wasn’t in its best financial shape even before the pandemic hit. The company reported a GAAP loss for 2019 and had only a few hundred million dollars in cash on the balance sheet against nearly $5 billion in total debt. As you can imagine, things got even worse this year, with the chart below showing the massive cash burn reported in the first nine months of 2020. Dollar values ​​are in millions.

(Source: Company 10-K file, seen here, and deposit Q3 10-Q, seen here)

The company has added nearly $1 billion in new debt so far this year, so additional interest charges will only put pressure on results going forward. Even with these revenue rebounds projected in the next few years, the street doesn’t see this name being profitable any time soon. Cash flow wasn’t great at first, and now cash burn is a major issue.

Of course, when you’re already this deep in debt, it can be very difficult to find new lenders. AMC therefore turned to stocks, selling a ton of stocks and diluting investors as shown in the chart below. However, the number of shares that would be outstanding assuming Goldman’s full deal goes through doesn’t even begin to scratch the surface. Thusday, AMC filed for sale Another 200 million shares, which could roughly triple the number of shares from here. What’s worse is that this may not even be the last capital raise needed.

(Source: Quarterly filings, seen here, and Goldman prospectus, seen here)

Honestly, I’m surprised AMC shares only lost 16% on Thursday given a double batch of bad news. The stock remains significantly above its 52-week low of $2.08 and the average selling price target of $2.15. Maybe investors are hoping there’s a buyer who can save the day, but at this point why not just wait for bankruptcy and pick up the pieces?

In the end, the bad news just keeps piling up for AMC shareholders. Warner Brothers is moving its slate of 2021 movies to streaming the same day those footage hits theaters, which will put additional pressure on the theater chain’s revenue. Meanwhile, deep losses and cash burn have resulted in massive debt and considerable dilution, with another 200 million share offering filed on Thursday. As the situation for AMC continues to deteriorate, it remains to be seen how long it will be before stocks retest their lows.

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