AMC Networks Inc (NASDAQ:AMCX) took a lot longer than rival entertainment companies to recover from the fallout of social distancing initiatives. While news of streaming services dominated the news, AMC’s Acorn TV, Shudder, and individual network apps gained little spotlight from investors.
You may watch its content, but are you willing to take the plunge as an investor? In other words, is AMC Networks stock a Buy?
The company’s biggest revenue generator lies in the popularity of it original content, like Mad Men, Breaking Bad, and The Walking Dead. But its stock price could’ve both suffered and gained by being tied this entire time to a completely unrelated business – AMC Entertainment Holdings Inc (NYSE:AMC).
It wouldn’t be the first time a case of mistaken identity tanked or buoyed two unrelated companies. Freaky Friday isn’t that hard to believe when two companies are so closely related. But AMC Networks isn’t in the movie business – it’s in the streaming business killing theaters off.
Time to binge on a few seasons of AMC Networks to determine if it rose from the dead prematurely or if it even belonged in its shallow grave in the first place.
AMC Networks Classic Movies Built A Loyal Audience
American Movie Classics is the flagship channel that started it all in the pre-internet days of 1984. The company debuted on premium cable with a format of commercial-free “classic” movies. This meant they had a cheaper cost to license than newer movies.
In the 2000s, the company shifted toward original content, creating the popular series listed above. It also merged with Rainbow Media, which was a subsidiary of Cablevision until it spun off. It then expanded horizontally through a series of acquisitions.
Besides the namesake channel, the company also owns IFV, Sundance TV, We TV, Shudder, and has a 49.9 percent stake in BBC America through a joint venture with BBC Studios.
The company also owns a minority stake in several independent brands, like Funny or Die and BritBox.
As a major creator and distributor of cable TV content, AMC has a presence across more than just cable. Its content is also available on Netflix, Pluto TV, YouTube TV, Amazon Prime, Sling TV, and FuboTV. You can also purchase or rent digital copies from iTunes, Google Play, and Vudu.
But the strength of its catalog and breadth of its availability doesn’t fully explain what happened to this stock during the pandemic.
Is AMC Networks Stock A Buy?
AMC Networks had a market capitalization of over $2 billion at the start of 2021 and a price-to-earnings multiple of over 21.00. In 2020, the company’s share prices plummeted to a low of $19.62 and failed to make any leeway until November, when an economic recovery in the market was signaled.
The company had a turbulent fiscal Q1 in 2020, but it smashed earnings estimates in the second quarter and barely beat them again in the third. Of course, expectations weren’t terribly high.
Revenues decreased 17.3 percent year-over-year to $462 million in the third quarter, with $130 million in operating income.
Distribution revenue and subscription revenue both dropped in the quarter. This is a bad sign that the company’s streaming services may be among the next casualties.
Covid-19 hurt the company’s advertising sales, shut down production temporarily, and closed its comedy venues. This created financial problems, and the company offered $500 million in convertible debt in January to relieve liquidity hurdles.
It’s still working to buyback stock and keep investors happy, but taking on the name AMC could have been detrimental to the market value. Even with its most recent price bump. The company hasn’t made much progress for investors in the past decade.
Risks Of Buying AMC Networks Stock
Although it has a lot of streaming services, the most popular in its portfolio is Acorn TV, which reached over one million subscribers by the start of the lockdowns. This ties it with BritBox, which AMC also holds a minority stake in.
But all of those numbers pale in comparison to Quibi, which died in 2020 with 5.6 million users. Of course, the paid userbase of Quibi was much smaller, and that highlights the problem with streaming services in the 2020s.
The market is saturated – streaming video used to be a cheaper alternative to cable. Now it’s an expensive addition to it. Even if you subscribe to cable, you need to get Netflix, Hulu, Disney Plus, Apple TV Plus, and Amazon Prime to catch all the original content.
When added together, their monthly fees eclipse a cable bill, and that puts AMC in both a good and bad position. On the one hand, it is dependent on the competition for better distribution. On the other, it can license its content much more freely than its stingier rivals.
Can AMC Networks Competitors Win?
AMC Networks has a lot of competition in both the production and distribution side, which we somewhat touched on already. It’s competing with content from heavy hitters like Home Box Office, A&T Television, and Turner Broadcasting on top of the major networks and streamers.
The advantage AMC has is its access to foreign television. If it can continue to source content from the U.K., Canada, Australia, and other English- and Spanish-speaking countries, it can still win in its lane and justify its raised price.
Is AMC Networks Stock a Buy? The Bottom Line
AMC Networks is a TV content producer and distributor that has nothing to do with AMC Theaters. However, the closeness of their stock symbols may have a part in keeping the TV studio down. That’s not the only reason though, as its lack of a solid streaming option foreshadows problems ahead while other studios vertically integrate.
But it could also be a competitive advantage. Streaming wars saturated the consumer market and cord cutting sentiment is balking at rising costs.
If the company doesn’t figure out a better way to compete, it may just be better off becoming a subsidiary of a major. Heck – it could benefit from buying AMC Entertainment and ending the confusion.
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.