Theater Chains' Stocks Hammered Since Debut of 'Cats,' 'Star Wars'

Cats - Publicity Still - H 2019
Universal Pictures

Despite recent bearishness surrounding film exhibitors, Hollywood had a nice year.

Star Wars: The Rise of Skywalker may be approaching $1 billion at the worldwide box office, but investors are still deeming it a disappointment, judging from how theater stocks have headed lower since it opened Dec. 20. And the debacle known as Cats, a $100 million film that has brought in just $38.1 million since Universal opened it that same day, isn't helping matters.

In the 11 days since they opened, shares of AMC Entertainment and Imax are each down 7 percent while Cinemark is off 4 percent. IPic, the luxury chain that offers comfortable seating, alcoholic beverages and other amenities, wasn't around long enough to feel the impact of the pair of movies, as it filed for bankruptcy protection in August and was delisted from trading.

For the year, AMC was off 36 percent, while Cinemark fell 2 percent and Imax managed to gain 9 percent. 

The parents of the two films, Disney in the case of Skywalker and Comcast in the case of Cats, have seen no ill effects, though, as each are major stock market winners in 2019, with the latter up 34 percent on the year and the former up 33 percent.

In fact, even in the midst of a streaming-media war that has led to a few million Americans cutting their satellite and cable TV cords (while many also stay at home for movies rather than heading to theaters), Hollywood stocks did quite well in 2020 — film exhibitors notwithstanding.

Disney was buoyed by record studio results, the closing of the acquisition of large parts of 21st Century Fox and excitement about the launch of Disney+ (despite the medium-term financial hit it will cause), while Comcast is benefiting from growth in cable courtesy of high-speed Internet access.

Discovery, driven by the success of its acquisition of Scripps Networks Interactive, the decision by media mogul John Malone to buy more stock in November and direct-to-consumer initiatives, was up 32 percent for the year.

AT&T, which purchased Time Warner in 2018 and renamed it WarnerMedia, was up an impressive 45 percent in 2019, leading the largest names in the entertainment/media sector. It was followed by Sony (up 42 percent), then Comcast and Disney. Netflix was next (up 21 percent), then ViacomCBS, which was up 3 percent after beginning to trade Dec. 5 following a merger that created the conglomerate that owns Paramount Pictures, MTV, Nickelodeon, Showtime, CBS and more. Fox Corporation is the laggard, down 7 percent since its deal with Disney closed in March.

Netflix's stock, a perennial winner, had a roller-coaster 12 months, as it was down earlier in 2019 before ending the year higher. And with the streaming wars kicking into high gear in 2020, some on Wall Street expect more pain. Needham & Co. analyst Laura Martin on Dec. 10 downgraded Netflix from "hold" to "underperform," "because it has consistently stated it will not have advertising, which we believe will result in U.S. sub losses." She added: "We project Netflix will lose 4 million U.S. subs in 2020 at its premium priced tier of $9-$16 per month. We believe Netflix must add a second, lower priced, service to compete with Disney+, Apple+, Hulu, CBS All Access and Peacock, each of which have $5-$7 a month choices."

Concluded Martin: "We believe that Netflix's premium price tier of $9-$16 per month is unsustainable because its perceived price/value ratio will fall over time as Netflix loses all 10 seasons of Friends to SVOD competitor HBO Max in the second half of 2020, all nine seasons of The Office to competitor Peacock/NBC in January 2021 and all Disney/Marvel/Pixar/Star Wars films to competitor Disney+ over time."

Bernstein's Todd Juenger is more bullish on Netflix. "Households in the future will increasingly obtain their in-home video entertainment via SVOD. When they do, most of them will include Netflix among their choices," he argued in a recent report. "There are billions of potential households in the world. That makes it very easy for us to believe Netflix will get to 300 million subs and beyond, on a content budget of $20 billion."

While the transition of entertainment conglomerates to the streaming age was one driver of the 2019 sector stock performance, Wall Street watchers also highlight more basic drivers.

"At the macroeconomic level, we believe several entertainment stocks have benefited in 2019 from a relatively healthy consumer spending environment, while a few others also began to reap some synergies from their recent acquisitions,” CFRA Research analyst Tuna Amobi tells The Hollywood Reporter. "Other notable catalysts in 2019 include continued strength in worldwide theme parks attendance (benefiting from a slate of new attractions based on popular entertainment franchises)."

While he argues that many of those trends "could carry over into next year," Amobi tells THR that "we have a more tempered outlook for entertainment stocks’ performance in 2020."

In a recent report, he cited "the outlook for some moderation in overall GDP growth." And the analyst suggested that big deals that have been a key trend in Hollywood in recent years may be on the back burner in the new year. "With some notable companies expected to confront further integration challenges on their recent acquisitions, we do not expect M&A activity to provide a major catalyst for stocks performance in 2020," Amobi said. "As the streaming wars intensify, we see some likelihood for the recalibration of certain valuation benchmarks for potential winners and losers."