AMC Networks Stock Hits 52-Week Low Amid Concerns Over Cost of Originals

7:09 AM PST 05/08/2014 by Georg Szalai
Alberto E. Rodriguez/Getty Images
AMC Networks CEO Josh Sapan

CEO Josh Sapan says his team is "appropriately unforgiving" towards underperformers.

The stock of cable channel operator AMC Networks hit a 52-week low Thursday as Wall Street expressed disappointment that the company's first-quarter earnings rose less than expected amid higher costs, especially tied to original series. 

The company's quarterly profit of $72 million was up 16 percent, but analysts had on average expected a bigger gain. In early Thursday trading, the stock was down 13.5 percent at $56.77 after earlier going as low as $53.99. Last June, the stock had hit $61.01, which was its 52-week low until Thursday morning, according to Bloomberg data. 

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The company's 52-week high of $78.39 was hit in March.

During an earnings call on Thursday, CEO Josh Sapan faced several questions about the cost for producing and promoting original series, which partially outweighs the revenue boost they provide by lifting advertising revenue. In the first quarter, for example, AMC hit show The Walking Dead contributed to a 27 percent ad gain for the company's U.S. business.

Sapan was also asked about the firm's outlook for new hits, saying that his team is "appropriately unforgiving" towards underperformers.

Overall, company executives touted such AMC hit shows as Walking Dead and Mad Men, which he lauded for its "extraordinary" staying power, as well as Rectify on SundanceTV. And Sapan said new Revolutionary War spy show Turn on AMC has done okay early on amid some concern about weaker-than-hoped. COO Ed Carroll said about the series that company executives "like what we're seeing so far" and that it will eventually come to Netflix down the line.

Sapan also highlighted that online binge viewing and other data must be considered when deciding the future of a series as do such factors as whether the company owns the show outright.

Some on Wall Street expressed concern about cost trends though. ISI Media analyst David Joyce downgraded his rating on the stock of AMC Networks after the earnings report, saying: "Despite the stronger-than-expected advertising growth, the lack of visibility on expense growth continues to concern investors."

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Stifel, Nicolaus analyst Benjamin Mogil also said that profit margins were "impacted by materially higher programming and promotional expenses, tied to both new shows airing this quarter and next, as well as a strong push behind return shows."

And Evercore Partners analyst Alan Gould wrote in a first review: "AMC reported strong revenue, but had much higher marketing and programming expense than expected." He added: "We expect this will be a consistent theme as the environment for finding new hit shows is more competitive than ever, with Showtime, Starz, Fox and Turner all targeting edgier serialized dramas, as well as incumbent HBO and Netflix and Amazon. We believe it will be veru challenging, and expensive, for AMC to repeat the trifecta it had with Walking Dead, Breaking Bad and Mad Men."

Discussing AMC Networks' recent acquisition of international channels business Chellomedia from John Malone's Liberty Global, Sapan said that Latin America provides a "significant" distribution opportunity for the networks, with additional opportunities in Europe. Plus, "there is an advertising opportunities…that will take longer to realize," he added.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai

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