AMC Theatres is one of the top operators of movie theatres in the US. The dominance of the company over this market segment is impressive.
- Of the top five highest-grossing movie theatres in the US four belong to AMC.
- The company is present in all 50 of the top designated marketing areas (DMAs) in the US.
- In the top 15 DMAs, AMC is first or second by market share.
- AMC owns 950 movie theatres in the US, totaling 10,500 movie screens.
Can a company operating brick-and-mortar movie theatres make a profit these days? And is AMC stock a good potential investment?
To begin answering those questions, we need to look at how AMC makes its money.
How AMC Makes its Money
Through its subsidiaries like AMC Entertainment Inc and American Multi-cinema Inc, AMC licenses movies for first viewing directly from independent distributors and production companies. It then shows these movies in its theatres, charging viewers for tickets and operating a profitable concessions side-business. AMC’s concession stands are responsible for around one-third of the revenues resulting from the theatres. And the food and beverage business is a high-margin segment of the theatre industry.
On ticket sales, the gross margin is around 50%. In concessions, it is 85.9%.
In 2019, before the COVID-19 pandemic closed theatres and made it impossible for AMC to run its business, the concessions side of the business generated $1.7 billion in revenues. The total revenues of the company were $5.7 billion then.
Although revenues have not yet managed to rebound to pre-COVID levels, theatre-goers are back hungrier and thirstier than before. The concessions business is booming. And it’s fattening AMC’s bottom line in addition to moviegoers’ waistlines.
During the first quarter of 2020, patrons left $4.76 at the concession stands per person on average. In 2021, that number was $7.37. And it may have climbed more since. In addition to healthier patron appetites, skyrocketing inflation and consumer prices may have also had a hand in the spectacular growth of AMC’s concessions revenues.
Ticket sales and concessions are the traditional money-makers of the theatre business. AMC is not about to rely solely on these tried-and-proven revenue channels, however.
AMC’s A-List Subscription Service
When it launched its A-List subscription service, AMC didn’t elicit many oohs and aahs among investors. In light of the struggles of other similar services, A-List didn’t seem like a good idea. AMC has cracked the subscription profitability code, however.
The company took a hit on admissions profit, but its concessions profits skyrocketed. The service sacrificed a lower-margin revenue stream to boost a higher-margin one. On average, A-listers spend 2.5 times more on movie food and beverages than they did before becoming members. The A-list system translates to more frequent visits to the theatres and more eating and drinking.
A-listers also tend to bring along full-price friends, so the service has exceeded all profit expectations.
AMC Stock is Volatile
With so many impactful fundamentals influencing its price, AMC stock is highly volatile. Starting low in 2021, AMC shares increased their value 36-fold by June of the same year. The price then dropped by more than 40% in a move mimicking the high-volatility price swings of the cryptocurrency industry.
The wild swings brought in scores of retail investors over the last couple of years. And AMC CEO Adam Aron sought to add fuel to the fire by introducing special dividends called preferred equities, the abbreviation of which reads APE. APE units have become AMC’s way of raising capital quickly and fashionably.
How to Buy AMC Stock
Investors interested in joining the ranks of the AMC “apes” can open an account at an online brokerage, fund it, and use it to buy AMC shares.
Currently hovering under $10, AMC stock is accessible. Its volatility makes it a high-risk investment, however.
Continue to learn by visiting our guide on buying stocks in the UK.