AMC Entertainment Holdings Inc. (AMC) has had a difficult time breaking out of its stock slump, falling ~50% from its 52-week high of ~$20 per share. At these levels, the stock sports a hefty dividend yield of ~7.5% with a healthy balance sheet and accelerating revenue and EPS growth. AMC is pouncing on Movie Pass’ collapse and rolled out its own loyalty program that has exceeded the company’s growth expectations. AMC’s rapidly growing loyalty program now has over 900,000 members to evolve a large segment of its business mix towards a subscription-based model to smooth out box office revenue fluctuations. This will allow durable and predictable revenue streams in the backdrop of changing box office dynamics. AMC is re-engaging the consumer via digital, mobile and loyalty program options, reformatting theaters to enhance the user experience and international expansion augmented by a healthy share buyback program. The stock looks very attractive considering its depressed valuation, solid Q2 earnings and company initiatives to drive the consumer experience. The long-term growth narrative remains intact while revenue continues to grow at a healthy clip with a strong movie slate to round out 2019, notably Joker, Terminator: Dark Fate, Frozen 2, Jumanji: The Next Level and Star Wars: The Rise of Skywalker.
Movie Pass’ Collapse and AMC’s A-List Subscriptions
Movie Pass is now history; however, the concept that the company brought to the market was the silver lining for AMC. AMC saw the overwhelming adoption by consumers and was forced to evolve by rolling out its own loyalty program via its A-List subscribers. AMC’s loyalty program now has over 850,000 subscribers which is expected to generate more than $150 million of annual recurring revenue. This will provide further penetration on the revenue front in excess of $300 million when factoring in food and beverage purchases and full-fare tickets purchased by bring-along guests such as family and friends. The loyalty program provides an opportunity to shift a segment of its business mix to a subscription-based model, providing durable and predictable revenue streams, mitigating box office fluctuations and driving long-term customer loyalty. Under this ticket subscription program, members can attend up to three movies per week in every available showtime and format. These membership numbers far exceed the company’s goal of 500,000 by mid-June 2019.
During the first quarter of 2019, AMC implemented a 10% membership price increase in ten states and a 20% price increase in five states. Based on an average monthly frequency of 2.85x for our A-List members in the second quarter, their associated full-price bring-along guest attendance, their food and beverage spend and the price increases in the first quarter, AMC believes the A-List program was profitable in the first half of 2019 compared to the estimated results if the program had not existed.
Solid Q2 2019 Numbers
AMC has been firing on all segments of its business on improving fundamentals across the entire enterprise over the previous quarter. For Q2 2019, AMC beat on the top line revenue with $1.51 billion beating estimates by $42.8 million and missing on the bottom line with $0.17 EPS, missing by $0.01 per share. Revenue grew by 4.4%, and second-quarter attendance set a record of 97 million tickets sold.
“AMC delivered strong results for the second quarter of 2019, achieving 4.4% year-over-year total revenue growth to $1.506 billion, driven by record attendance in both our U.S. and international markets. Importantly, the total Adjusted EBITDA grew 7.3% year-over-year after adjusting 2018 for the non-cash accounting impact of ASC 842.”
"In a quarter that generated the second-largest domestic industry box office for any quarter in the past 100 years, we are especially gratified that AMC outperformed the rest of the U.S. industry (meaning comparing AMC with the rest of the U.S. industry, excluding AMC) in attendance per screen by 800 basis points and in admissions revenue per screen by 400 basis points. Additionally, AMC generated record U.S. food and beverage per patron of $5.58 and total food and beverage per patron of $5.08, representing year-over-year growth of 5.5% and 3.9%, respectively.
“We continue to drive this performance by leveraging the power of the AMC platform: from experiential initiatives and enhancements at our theatres to a frictionless use of technology to communicate, engage and sell to our guests. We are seeing meaningful recovery in Europe, and our efforts in the United States have been greatly aided by the soaring popularity of our AMC Stubs loyalty program, which recently crossed 21 million member households, our AMC Stubs A-List subscription program now with more than 900,000 subscribers, and our AMCTheatres.com web site and smartphone apps now being visited at a pace of more than 1 billion times annually.”
Adam Aron, CEO, and President of AMC
AMC is pouncing on Movie Pass’ collapse and rolled out its own loyalty program that has exceeded the company’s growth expectations. AMC’s rapidly growing loyalty program now has over 900,000 members to evolve a large segment of its business mix towards a subscription-based model to smooth out box office revenue fluctuations. AMC’s loyalty program has been so popular that it put through price increases to expand its margins due to its pricing power. The second quarter generated the second-largest domestic industry box office for any quarter in the past 100 years, and AMC outperformed the rest of the U.S. industry in attendance per screen and in admissions revenue per screen. AMC also generated record U.S. food and beverage per patron. The stock is a compelling buy with a dividend yield of 7.5% and accelerating revenue and EPS growth. The stock looks very attractive considering its depressed valuation, near 52-week low, industry strength forecasted through 2019 coupled with a slew of company initiatives to drive the consumer experience and drive cost synergies.
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