AMC Entertainment Group (AMC 7.08%) was crushed at the pandemic onset when all its theaters were forced to close temporarily. The movie theater company relies on bringing large groups together in person, so an outbreak of a potentially deadly virus will understandably lower attendance. Fortunately for stakeholders, the fight against COVID-19 keeps progressing with vaccines and treatments. That's allowing AMC to reopen and keep open its 950 theaters.
In another round of good news, studios are once again releasing blockbuster films to the big screen after pausing releases during lockdowns. The biggest of them all has been Spider-Man: No Way Home. So how does that help AMC?
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AMC gets some good news from the blockbuster film
Spider-Man: No Way Home has thus far generated over $1.54 billion in box office revenue worldwide. Typically, movie theaters and studios negotiate a revenue split of box-office sales. A 50-50 share is common, but sometimes studios with clout can command a higher percentage. Still, even considering a conservative 40% estimate, movie theater operators could take in over $600 million in revenue from the Spider-Man film.
Certainly, that's a welcome sign for an industry devastated by the pandemic. AMC, in particular, saw its revenue fall from $5.4 billion in 2019 to $1.2 billion in 2020. The decrease was catastrophic, and the company needed to borrow billions of dollars and raise billions more in equity to ensure it survived the pandemic.
Thankfully, it attracted the interest of a group of retail traders who decided to buy the stock with the hopes of forcing a short squeeze. This buying raised AMC's stock price and allowed the company to raise more money than it otherwise could have with equity sales.
In its most recent quarter, ended Sept. 30, AMC lost $202 million on the bottom line and $313 million in cash from operations. Even though movie theater attendance improved in the period, it wasn't enough to offset AMC's high expense base. Shareholders are hoping that the overwhelming popularity of the Spider-Man film lifted revenue enough to turn the company profitable again.
Interestingly, while AMC generated $293 million in revenue from ticket sales and $198 million through food and beverage sales in Q3, profits from the two were nearly equal. That's because film exhibition costs, including the share it has to give to studios from ticket sales, were $127 million. Meanwhile, food and beverage costs were only $28.4 million.
It's no surprise that selling $9 buckets of popcorn and $7 cups of soda are lucrative sources of revenue. And there is a likelihood that AMC could have made just as much money from the rise in food and beverage sales as it did in ticket sales for the blockbuster hit.
AMC stock is still expensive and risky
Although the hit movie is excellent news for AMC, it is still no reason to buy the stock. The company is still overvalued following the stratospheric rise in price in 2021 despite its poor operating performance. It is, however, a step in the right direction for the struggling movie theater chain.
