Monday, October 27, 2014

AMC, CKEC, CNK, RGC: More good news ...

Although we have begun working for what we view as the best NoSQL technology startup/vendor, we remain up-to-date on the equity market and the overall economy.  So here's a quick update on the movie theatre companies which we initially discussed in late Mar. '14. 

According to Box Office Mojo, this October "is already the highest-grossing October ever, and still has five days left to add to its record-setting number."  And this is good news for the movie exhibitors that we talked about, especially CNK and RGC.  As a reminder, in Mar. '14 we were very bullish on CNK and RGC, a bit neutral on AMC, and viewed CKEC as slightly overvalued.  As of 10/24/14 (and since we pitched those names), as shown below, CNK has clearly outperformed the rest (incl. the S&P 500), RGC has also done better than the S&P 500.  AMC and CKEC are actually flat to negative and both below S&P 500. 

AMC, CKEC, CNK, RGC vs S&P 500 since March 20, 2014

Besides reviewing our performance, we'd like to discuss some of the other news in this space and their potential impact on movie exhibitors and other players.

First, as many know, NFLX has become active in working with reputable movie makers (such as The Weinstein Company).  It appears that those movies will likely bypass the theatrical release window and will be shown on NFLX and in Imax theatres when they are initially released.  While over time, a long time, this may cannibalize box office gross receipts, we think it may also help theatres differentiate themselves more easily from the 'in-home and on-smaller-screen' environment, especially when going up against NFLX.  In addition, in our opinion, Imax's participation in this 'revolution' may impact the Company's margins negatively as the fixed operating costs of Imax-only theatres (theatres run by Imax and not its exhibition partners/clients) are higher.  Lastly, we don't think large studios are yet ready to cannibalize those traditional box office receipts.  As the financial numbers have shown and the charts above indicate, those traditional movie theatres have done quite well. 

Also, recently, TWX's HBO announced it will bypass MSOs (or cable and satellite content distributors) and stream its content directly to its viewers beginning next year via HBOGo.  While this is not very good news for MSOs, we note that their revenue sources are quite 'diversified' as they include Internet services, wireless, and some, such as CMCSA, actually create valuable and expensive content.  However, in our opinion, such news is a bit worse for NFLX.  Yes, NFLX, the Company beloved by millions of consumers.  Unfortunately, with many other players entering the NFLX OTT space, in our opinion, the price elasticity of demand (PED) by subscribers will increase.  We saw an early indication of this as total NFLX subs in Q3 were disappointing and came in below expectations after the Company increased its price to be able to pay the higher premiums demanded by content makers and to fund its global expansion.  Of course, as we've mentioned many times before, NFLX needs to raise its prices to attract higher quality and more expensive content while minimizing how much cash it burns.  While its subs and top-line continue to grow, although at a slightly lower rate, PED in the space has also increased and the Company has not yet been able to generate FCF consistently, which isn't good news, in our opinion. 

Some of the other related posts:

No comments:

Post a Comment