AMC Entertainment Holdings Inc (NYSE:AMC) made waves in 2021 by reaching a historic high market capitalization of $30 billion. The momentous skyrocket happened after a 3,325 percent boost from Reddit’s WallStreetBets subreddit community. Amid the furore, some traders mistakenly bought shares of AMC Networks Inc (NASDAQ:AMCX) while thinking they were buying AMC Entertainment stock.
So, what’s the difference between AMC Entertainment and AMC Networks, and which is the better investment opportunity?
Both companies received a boost from retail traders in 2021, but AMC Networks is a much smaller company. Its market capitalization stands around $3 billion and has not received nearly as big a “push” from the “apes.”
The two companies have a lot more in common than just a name. Both the global box office and production studios lacking a streaming service could end up on the chopping block as streaming services like HBO Max, Netflix, and Disney Plus are proving to be the wave of the future.
Why Is AMC Entertainment Stock Trading So High?
AMC Entertainment is what’s known as a meme stock, or “stonk”, which gains online support from retail investors en masse. And the company leaned into its new found popularity by offering free popcorn and exclusive screenings to investors, making it a social experiment for a new age of investing.
Hedge funds traditionally make up the bulk of major company shareholdings, but the AMC theater chain became a rare publicly traded company that attracted enormous retail interest. It became a target of a massive short squeeze that hyperinflated its stock price, triggering institutional investors holding the stock to sell off for big profits.
That leaves the company in a precarious position, as “diamond-hand” traders need to weather a potential sell-off, as the market capitalization falls back to earth.
On the plus side, AMC did raise nearly $500 million in the first quarter of 2021 alone. This helped the company to pay down some debt and get on top of liabilities, ultimately strengthening its balance sheet. However, it still has over $12 billion in liabilities compared to just over $10 billion in assets.
Is AMC Stock a Good Buy?
AMC’s market capitalization over $20 billion is still more than double its share price before retail investors bought it in droves. The demand however is not based on fundamentals. Streaming services like Disney Plus, HBOMax, Netflix (NFLX), and Amazon Prime Video are all working on new release models that could further devalue theaters.
Demand for movie theaters hasn’t waned entirely but the past couple of years has hurt their popularity significantly. To counter the lack of interest in sitting in a movie theater, AMC innovated by allowing individuals and corporations to rent out movie theaters entirely to groups. For around $100, it was possible to have a movie theater experience all to yourself and your friends – no strangers permitted.
As many analysts pointed out throughout the year, the so-called “apes” in the Reddit mob aren’t interested in the business fundamentals of the underlying company. The numbers on paper don’t mean much, even as the C-suite pushes for deeper retail understanding of its balance sheets.
And it seems like AMC Entertainment may have its work cut out for it educating a disorganized investor base. Some of them went a step further and invested in a different AMC Networks, a completely different organization.
What Does AMC Networks Do?
AMC Networks was originally launched as Rainbow Media Holdings (a subsidiary of Cablevision) and spun off in 2011 as its own publicly traded company. From there, it continued to grow through a series of mergers and acquisitions. Its owned brands include AMC, IFC, Sundance TV, Shudder, and a nearly-50 percent stake in BBC America.
As the internet grew, the company invested in streaming services like Acorn TV and Shudder, along with TV Now versions of its popular channels.
It also invested in Funny or Die and other internet content companies. However, the streaming services aren’t as well known as the shows coming from the production studio.
Should I Buy AMCX Stock?
AMC Networks had a great 2020, with over 6 million aggregate streaming service subscribers and $686 million in free cash flow. It raked in $2.8 billion in revenues for the year and opened 2021 strong with $692 million in net revenues for the first quarter.
Its biggest strength is the availability of AMC content across streaming services like Netflix and YouTube TV.
The company is heavily invested in producing in-house talent through its management business. However, the stock is still inflated from the retail trading rush.
AMCX Share Price Bloated, In Error?
The biggest risk of investing in AMC Networks is that it can’t maintain the investor interest once AMC Entertainment starts to fall. There is an online trend supporting AMC stock that’s unlikely to sustain for a full decade, and that’s going to create price volatility for shareholders. And it could affect AMC Networks.
AMC Networks still hasn’t built enough of a platform to compete with the major streaming giants. Netflix has over 200 million subscribers, and Disney Plus (DIS) has over 100 million subscribers. This puts both streaming services in the position to squeeze out AMCX, which may need to follow in AMC’s footsteps and seek a buyout from a more established company.
AMC Entertainment vs AMC Networks: The Bottom Line
Both AMC Entertainment and AMC Networks are in a precarious position. Their share prices were pumped up by a retail trading frenzy that doesn’t necessarily reflect the fundamentals behind the companies. As the dust settles on the buying frenzy, this makes it difficult to recommend investing in either for the rest of the year.
There’s no telling how long the trading excitement will last. What we do know is that each company faces unique challenges while competing with much larger companies. The streaming and theater wars are far from over, and there’s still plenty of fight left in these if you’re willing to take the ride. It’s probably safer to avoid them for now though.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.