Author Topic: AMC - AMC Entertainment Holdings  (Read 1611 times)

txvalue

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AMC - AMC Entertainment Holdings
« on: November 09, 2018, 09:02:54 AM »
AMC has been written up several times in other places and it is a name that will be well known to most.

Mittleman has a large position.

https://valueinvestorsclub.com/idea/AMC_ENTERTAINMENT_HOLDINGS/9309645712

https://valueinvestorsclub.com/idea/AMC_ENTERTAINMENT_HOLDINGS/6058183687


Baupost has a sizeable stake.

The stock is down big today after disappointing earnings, but I don't think the long term story is impaired. There are quite a few moving parts here with their Euro acquisitions, theatre renovations, new PE involvement, special dividend, Wanda Group pressures etc.

Interested if any board members have been following the story here or care to discuss.
« Last Edit: November 09, 2018, 09:06:37 AM by txvalue »


peridotcapital

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Re: AMC - AMC Entertainment Holdings
« Reply #1 on: November 09, 2018, 09:21:06 AM »
Equity seems fairly valued at around 8x EV/EBITDA and low double-digit free cash flow multiple, given the long-term trends in attendance per screen. The debt looks attractive for those who have allocations to high yield corporate bonds.

FD: long the bonds.

Foreign Tuffett

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Re: AMC - AMC Entertainment Holdings
« Reply #2 on: November 09, 2018, 12:53:52 PM »
Market is right to be concerned. Attendance was up Y/Y, but ticket prices were down 6.6%.

Attendance is overwhelmingly driven by the film slate, something AMC has relatively little control over.

AMC has more control over ticket prices. The market is concerned that it's relatively unconcerned about how A-List memberships may be cannibalizing full price ticket sales. This is a mature business with plenty of operating leverage so pricing needs to stay strong.

txvalue

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Re: AMC - AMC Entertainment Holdings
« Reply #3 on: November 09, 2018, 02:34:37 PM »
I understand what you are getting at - here are some of my thoughts Foreign Tuffett:

- A List picked up subscribers much faster than expected. They basically reached their full year goal in 5 months.
- They are reworking pricing in some of the areas where tickets are more expensive for FY 19.
- The initial data indicate people seeing lots of movies the first month they sign up for A-List and then attendance trickling down as the months go on - by month 3 the avg vistits per month was down to 2.7. I suspect they will keep adjusting until they near that 2.5/mo visit number they always reference as the magic number.

I think these things all had an impact on pricing. They are clearly tweaking the model as time goes on rather than just having static prices everyday ($5 tuesdays, more expensive tickets on the weekend etc).

The other thing to point out is that this is becoming more of a food & beverage story. They have a great margin here (85.4%)so driving attendance is important.

AMC was catching heat from everyone for not having a subscription model and now in under 5 months they have arguably the hottest offering out there. HMNY has imploded and CNK's offering is just ho-hum.

I think the biggest issue is that management is not really digging into paying down debt.  The three acquisitions are really the reason there is an opportunity here, especially with European theatres showing weakness.

It is really difficult to maintain a large dividend, big cap ex spend, a new program like A-List, a special dividend, share buy backs all at the same time when you have a mountain of debt.  I think a strategy to tackle the debt and lighten up on renovations sends this stock into the low 20's straight away. With the 2019 and 2020 movie slate this could be a $30+ stock.

My second wish is that their CEO would just directly answer questions on conference calls.  I know he is a marketing guy but simple questions are often followed by 10 paragraph response from Adam and it can be a bit exhausting.
« Last Edit: November 09, 2018, 02:38:03 PM by txvalue »

given2invest

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Re: AMC - AMC Entertainment Holdings
« Reply #4 on: November 09, 2018, 04:03:34 PM »
Adam is a god awful CEO.  If he was replaced I would consider buying but with him in charge forget it.  Virtually all the decisions he's made since becoming CEO have been wrong.

johnny

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Re: AMC - AMC Entertainment Holdings
« Reply #5 on: November 09, 2018, 11:05:18 PM »
Domestic (USA + C) box office annually is coming in at about $11B.

Just about half of that is coming from frequent (>1/month) filmgoers. They make up about 12 percent of the population, or about 43 million people.
If we call that the addressable market, we can take those 43 million people, put them on $20/month subs, and suddenly turn their $5.5B in box office into $10.3B. Add back the other $5.5B that is coming from people that are too casual to be legitimate subscriber prospects, and it isn't at all difficult to imagine a world where last years $11B in BO has been pushed into $16B on nothing more than the normal diet of biannual Marvel releases and an Avatar or two.

Now, of course converting those 1+/month viewers into subs probably means they're going to be coming a bit more often. Is this a problem?

In 1987, the average number of tickets sold per screen-week was over 900. Last year it was well under 600. And all the new screens built in the past quarter century have been way larger, with waaaay more seats than the average auditorium from the 80s. So the capacity is there, they just have to figure out how to manage the traffic.

So can they? Well, Moviepass was able to keep its subscribers through a lot of insane nudging/tech glitches/service blackouts, etc. So I'm cautiously optimistic that AMC can figure out a way to motivate it's 5+/month A-Listers to prefer Tuesdays to Friday (give them twenty cents of popcorn or something, we already know they're way less likely to buy F&B). Lots of knobs to turn there, so I don't consider it a thesis breaker.

At this point, I don't think anybody should be investing in AMC (or anything adjacent) unless they have a strong opinion on what the subscription world is going to look like when the dust settles. Despite the fact that it's all they talked about on the call, I still think they're vastly underselling how potentially industry-shifting this thing is.

Foreign Tuffett

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Re: AMC - AMC Entertainment Holdings
« Reply #6 on: November 10, 2018, 11:29:58 AM »
Domestic (USA + C) box office annually is coming in at about $11B.

Just about half of that is coming from frequent (>1/month) filmgoers. They make up about 12 percent of the population, or about 43 million people.
If we call that the addressable market, we can take those 43 million people, put them on $20/month subs, and suddenly turn their $5.5B in box office into $10.3B. Add back the other $5.5B that is coming from people that are too casual to be legitimate subscriber prospects, and it isn't at all difficult to imagine a world where last years $11B in BO has been pushed into $16B on nothing more than the normal diet of biannual Marvel releases and an Avatar or two.

Now, of course converting those 1+/month viewers into subs probably means they're going to be coming a bit more often. Is this a problem?

In 1987, the average number of tickets sold per screen-week was over 900. Last year it was well under 600. And all the new screens built in the past quarter century have been way larger, with waaaay more seats than the average auditorium from the 80s. So the capacity is there, they just have to figure out how to manage the traffic.

So can they? Well, Moviepass was able to keep its subscribers through a lot of insane nudging/tech glitches/service blackouts, etc. So I'm cautiously optimistic that AMC can figure out a way to motivate it's 5+/month A-Listers to prefer Tuesdays to Friday (give them twenty cents of popcorn or something, we already know they're way less likely to buy F&B). Lots of knobs to turn there, so I don't consider it a thesis breaker.

At this point, I don't think anybody should be investing in AMC (or anything adjacent) unless they have a strong opinion on what the subscription world is going to look like when the dust settles. Despite the fact that it's all they talked about on the call, I still think they're vastly underselling how potentially industry-shifting this thing is.

Smart thoughts, but I think you are missing a few pieces of the puzzle:

- Recliner upgrades involve losing up to 2/3s of a given auditorium's seating capacity.

- It's not just about optimizing seat capacity. AMC is constrained by its relationship with the studios, who get ~50% of the revenue from each ticket sale and, importantly, sit outside the A List system. I think studios are getting 50% of the average ticket price every time A List is used, not 50% of the revenue AMC is bringing in from the subscription. I think this dynamic is the main reason AMC's ticket price metric nosedived this Q.

This guy (no affiliation) explains the dynamic well:

https://www.youtube.com/watch?v=7-eGQf7Hx7c

I agree with given2invest. Aron is a poor capital allocator. Carmike was a horrible acquisition.

given2invest

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Re: AMC - AMC Entertainment Holdings
« Reply #7 on: November 10, 2018, 12:18:49 PM »
He's also a promoter.  And a liar.  I'm really surprised Silver Lake invested with him.

johnny

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Re: AMC - AMC Entertainment Holdings
« Reply #8 on: November 10, 2018, 06:30:16 PM »
- Recliner upgrades involve losing up to 2/3s of a given auditorium's seating capacity.

Yeah, until looking at the transcript AMC last night I was unaware of the extent of this new trend. But the fact that they were doing these conversions in the first place, I think, tells you what the capacity situation was (and still is). Wish I could get better data on average area per screen trends.

AMC is constrained by its relationship with the studios, who get ~50% of the revenue from each ticket sale and, importantly, sit outside the A List system. I think studios are getting 50% of the average ticket price every time A List is used, not 50% of the revenue AMC is bringing in from the subscription. I think this dynamic is the main reason AMC's ticket price metric nosedived this Q.

The exhibitor incentive has always been to try and shift gross dollars from tickets to concessions, and while I'm sure this has been wrestled with before in distribution agreements, the new business model is going to make it even more contentious. It's why I don't think a 50% increase in total box office is necessary a bull argument for the stock.


I agree with given2invest. Aron is a poor capital allocator. Carmike was a horrible acquisition.

I laughed out loud when this guy spent three paragraphs expressing his bewilderment that the convertible debt actually becomes MORE EXPENSIVE as the stock price increases. And then caps off the embarrassing display by confidently predicting the converts should have no impact on the valuation because, of course, the liability adjusts outside of EBITDA. I'm not sure how any company is investible with somebody like that making decisions.

kab60

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Re: AMC - AMC Entertainment Holdings
« Reply #9 on: November 10, 2018, 11:21:33 PM »
This is the best part I think:

$665.1 million of adjusted EBITDA this year so far versus $534.3 million of adjusted EBITDA last year so far, that's an increase of $130.8 million. Can I repeat that figure for emphasis? AMC's adjusted EBITDA is running more than $130 million ahead of last year for the same nine month time period.

While the dude is giddy about getting Silver Lake onboard, I'd be nervous if I was Aaron. Those guys aren't dumb and I doubt he impresses them much.