Will AMC Theaters (AMC) Go Bankrupt?

Before the pandemic, AMC Theaters (AMC) generated almost $600 million in cash from operations.

Now, it burns through $200 million in a year.

The beleaguered company may be a meme stock fan favorite, as evidenced by the incredibly high retail investor search volume from our TrackStar database.

Yet, we believe the company won’t exist in its current form within the next 3-5 years.

Here’s why.

AMC Theaters’ Business

Movie theaters have been the heart of American entertainment since the birth of the motion picture.

The business has changed over the years.

Drive-in theaters have died off. Auditoriums now come with premium seating and concessions.

Yet, like most brick-and-mortar industries, the move online, in this case to streaming, has put the industry on a path from which it may never recover.

AMC Theaters operates over 10,000 screens and almost 900 theaters across the U.S. and globally.

While it’s still the largest chain in the U.S., AMC continues to shrink in size.

Source: AMC Theaters Q1 2024 Press Release

Streaming has taken a huge bite out of the company’s sales and attendance, which never bounced back from the pandemic.

Financials

Source: Stock Analysis

AMC’s biggest problem is its cash flow.

Other than a quarter here or there, the company burns more money than it brings in, forcing it to rely on debt and equity issuances.

Shares have already been substantially diluted with total shares outstanding going from 10 million in 2019 to 263 million in the latest report.

Total debt sits just shy of $9 billion while onhand cash is just $624 million.

With a burn rate of over $200 million annually, the company has fewer than three years to turn things around or raise capital.

Valuation

Source: Seeking Alpha

Here’s the thing, though…not all movie theaters are failing.

Marcus Entertainment (MCS) and Cinemark (CNK) both generate cash from operations. And neither saw debt explode nor had to issue common stock just to stay afloat.

In fact, both trade at fairly cheap price-to-cash multiples and even still pay dividends.

Growth

Source: Seeking Alpha

After bouncing back from the pandemic, most theaters are forecasting more tepid sales increases in 2024.

Growth is necessary to survive when you’re dealing with fixed-cost movie theaters. Yet, AMC can’t seem to do it profitably.

Profitability

Source: Seeking Alpha

AMC’s gross margins are abysmal. This translates directly to negative net income margins and cash flow, which neither Cinemark nor Marcus faces.

In fact, Dolphin Entertainment (DLPN) is the only other company on this list besides AMC that burns through cash.

Our Opinion 0/10

AMC is a poorly managed company in a tailspin.

The heavy debt it took on during the pandemic is effectively putting the company’s cash flow in the red.

Cinemark and Marcus Entertainment didn’t have this problem.

So, if we’re going to invest in a movie theater chain, it’s not going to be the one on life support with three years left to live.

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