Despite macroeconomic challenges, the entertainment sector is experiencing growth by incorporating advanced technology and providing enhanced user experiences. Moreover, the long-term potential is bolstered by factors like widespread internet use, new offerings, and emerging technologies.
Given this backdrop, while buying IMAX Corporation (IMAX) could be wise, AMC Entertainment Holdings, Inc. (AMC) might be best avoided now.
Before diving deeper into their fundamentals, let’s discuss why the entertainment industry is well-positioned for growth.
Despite a projected increase in digital engagement, the media and entertainment industry is expected to witness a slowdown in growth to 2.8% by 2027, with challenges such as a decline in podcast creation and concerns about global uncertainties.
However, the end of Hollywood strikes brings stability. Despite changes in 2024, there's optimism for 2025, thanks to potential benefits from shifted release dates and expected higher box office revenues. The positive outlook is supported by a robust lineup of new movies and a post-strike recovery seen as a short-term setback, not a lasting trend.
The box office sales in 2023 surpassed last year's figures by $1 billion, reaching an impressive $5.8 billion by July 30. Moreover, according to a Markets N Research report, the global movie theater market is projected to grow at a 4.5% CAGR, reaching $92.40 billion by 2030.
The industry also adapts to consumer preferences, adopting digital tools and technology for creativity, flexibility, and cost-effective offerings. The global media and entertainment market is forecasted to reach $2.44 trillion by 2028, growing at a CAGR of 6.4%.
Moreover, technological advances are transforming film production. The generative AI market in media and entertainment is projected to reach $12.08 billion by 2032, growing at a CAGR of 26.7%.
Considering these conducive trends, let’s take a look at the fundamentals of the two Entertainment - Movies/Studios stocks, starting with the one positioned lower from an investment perspective.
Stock to Avoid:
Stock #2: AMC Entertainment Holdings, Inc. (AMC)
AMC and its subsidiaries engage in the theatrical exhibition business. The company owns, operates, or has interests in theaters worldwide.
In terms of the trailing-12-month gross profit margin, AMC’s 14.55% is 70.3% lower than the 49.02% industry average. Likewise, its 0.03% trailing-12-month levered FCF margin is 99.7% lower than the 7.0% industry average. Its 7.85% trailing-12-month EBITDA margin is 59.2% lower than the 19.26% industry average.
AMC’s revenues for the fiscal third quarter that ended September 30, 2023, stood at $1.41 billion. Its operating costs and expenses increased 20.6% year-over-year to $1.31 billion. The company’s adjusted net loss and loss per share stood at $13.90 million and $0.09, respectively.
Also, as of September 30, 2023, AMC’s total assets stood at $8.79 billion compared to $9.14 billion as of December 31, 2022.
For the quarter ended December 31, 2023, AMC’s EPS is expected to remain negative, while its EPS for the quarter ending March 31, 2024, is expected to decrease 0.4% year-over-year to $950.57 million. Over the past year, the stock has declined 91.3% to close the last trading session at $4.33.
AMC’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Sentiment and Quality. It is ranked last in the Entertainment - Movies/Studios industry. To see AMC’s Growth, Value, and Momentum ratings, click here.
Stock to Buy:
Stock #1: IMAX Corporation (IMAX)
IMAX and its subsidiaries operate as a technology platform for entertainment and events worldwide. The company operates through three segments: IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
On September 13, IMAX and PFT announced plans to expand their strategic relationship into the streaming ecosystem. IMAX will provide its Stream Smart technology to PFT customers in Europe, Asia, and Australia, enhancing global access to a solution that improves picture quality and reduces distribution and storage costs for streaming platforms.
Vikram Arumilli, General Manager of Streaming and Consumer Technology at IMAX, said, "Our suite of streaming technology products, including Stream Smart, provides a best-in-class service for direct-to-consumer broadcast and streaming companies, and PFT's' ability to leverage this for their customers is a win-win for both organizations."
On July 25, 2023, IMAX and Cineplex Inc. expanded their partnership in Canada, adding five new IMAX systems and two IMAX with Laser upgrades. Cineplex also renewed terms for 24 existing IMAX locations through 2028, solidifying their 25-year partnership and totalling 29 IMAX locations in Canada.
Additionally, IMAX has signed 84 agreements for new or upgraded systems worldwide in 2023, surpassing last year's total.
In terms of the trailing-12-month levered FCF margin, IMAX’s 19.54% is 150.5% higher than the 7.80% industry average. Likewise, its 5.60% trailing-12-month Capex/Sales is 36.2% higher than the 4.12% industry average. Additionally, its 57.03% trailing-12-month gross profit margin is 16.3% higher than the 49.02% industry average.
IMAX’s total revenues for the third quarter that ended September 30, 2023, rose 51% year-over-year to $103.90 million. Its gross margin increased 98% year-over-year to $62.70 million. The company’s adjusted net income was $19.40 million, compared to a loss of $3 million in the prior-year quarter. Also, the company’s adjusted income per share was $0.35, compared to a loss of $0.05 in the prior-year quarter.
Street expects IMAX’s EPS for the quarter that ended December 31, 2023, to decrease 37.4% year-over-year to $0.12. Its revenue for the same quarter is expected to decrease 2.2% year-over-year to $95.89 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 4.8% to close the last trading session at $14.23.
It’s no surprise that IMAX has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
It has an A grade for Growth and Quality. It is ranked first out of 6 stocks in the same industry. Beyond what we stated above, we also have given IMAX grades for Value, Momentum, Stability, and Sentiment. Get all the IMAX ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMC shares were trading at $4.24 per share on Wednesday morning, down $0.09 (-2.08%). Year-to-date, AMC has declined -30.72%, versus a 2.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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