My Marcus Theaters post got some readers fired up. Fortunately, most readers understand and appreciate what I’m doing here (for free, no less — a stark contrast to what I earned as a reputed Wall Street consultant before semi-retiring in 2008).
Nonetheless, allow me to reiterate (bluntly, if not rudely) that I’m not here to hand-feed research to readers who have no Wall Street experience (nor offer any constructive contributions to the group research effort that this blog was launched to foster).
In other words, if you don’t like what you’re getting here, I suggest that simply probably getting what you paid for… but also what you’re putting into it. ;^)
This isn’t Seeking Alpha or StockTwits. This is a forum for me to share data and collaborate in a professional manner. Of course, I welcome those who wish to simply be a fly on the wall & appreciate the sharing. I’m still doing this for you too :^)
OK. Let’s get down to business…
For the record, the MCS data point (last week’s topic) is a data point. On the surface, it wasn’t one that should have been given a lot of weight (because they’re one-tenth the size of AMC).
However, it did have value as a sign of possible things to come.
Folks, the first step to combating confirmation bias is learning how to coldly estimate how weight should be put into each data point. Keep that in mind as you read today’s post…
Cinemark Holdings (CNK) reported Q4 EPS of $0.82 (which beat estimates by $0.34).
Revenue of $750M (+7.0% Y/Y) beat by $4.16M.
Admissions revenues increased 4.5% to $443.5M during the quarter and concession revenues rose 10.1% to $261.2M. Average ticket price was $6.72.In the U.S., the average ticket price was $7.98 vs. $7.65 a year ago. Concession revenues per patron was $3.96. In the U.S. concession rev per patron was $4.69 vs. $4.24 a year ago.
Management was ecstatic about the launch of its “MovieClub” loyalty program. CNK signed 120,000 customers in 80 days. Among other things, it gives members a 20% discount on concessions.
Speaking of which, concessions were +9.8%. Concessions per patron was $4.69 (+10.6); CNK attributed this to its internal strategic initiatives (50% of the growth), price optimization (35% of the growth), and newer/renovated theaters (almost 15% of the growth), with “other” providing an insignificant impact. This implies that MoviePass (which I’ll call MP for the rest of this post) had little to no impact on their results. Concession margins were down, lending credence to the price optimization impact.
In fact, CNK made no mention of MP. Of greater interest, none of the analysts asked about MP on the call. I got into the Q&A queue, but was never allowed in. Clearly, the company selects who is allowed into Q&A (mainly to keep the riff-raff out, but also to keep Q&A exclusive to analysts they already know).
It amazes me that some people think that sell-side analysts baked a MP impact into their theater-company models when 1) MP has still yet to penetrate 1% of moviegoers and 2) theater-company management teams aren’t even acknowledging their existence. I’ve talked to analysts and read plenty of their reports. Most don’t see MP as important enough (yet) to care and they’re certainly not going to deviate from management’s guidance and go out on a limb to “bake MP’s impact” into their models. If you don’t believe me, you can go ask them yourselves (if you’re not lazy like me… LOL).
My interpretation of all this is that the majors are going to ignore MP for as long as they can. This is consistent with the recent rhetoric from Mitch and Canaccord, both of whom have focused on MP’s opportunity with smaller studios and theater chains.
Indeed, this has been my thesis for months, but many investors refuse to see what’s been evident for awhile now. To be clear, there’s no shame in that. MP can build a nice business as a mid-market player.
However, they’re obviously going for something much more… and the expense is obscene (and I never said that about AMZN, NFLX, etc). Every opportunity has a proper level of investment. I simply don’t believe that MP has chosen the proper level for their risk/reward profile.
Most notably, even Canaccord readily admits that they will produce another ~$350 million before getting close to profitability. In the process, they seem to believe that the company can self-fund itself via their annual subscription plan. However, that assumes that customer usage drops (which hasn’t happened thus far, based on Mitch’s recent comments re:MP buying 1 in 19 tickets over the preceding 3-week period — do the math if you don’t believe me).
By the way, international concessions were also way up +11% (11.3% constant currency) Per-customer concessions were $2.46 (+7% in constant currency). There/s no MP there, so MP obviously didn’t impact the international pop in concessions. The numbers seem to show that recliners are having a decided impact on CNK’s results. Feel free to see the comments section of my last post. One of our readers was kind enough to run the math, which confirm this IMHO.
CONCLUSIONS — Many people (along with MP) have pointed to the success of Studio Movie Grill’s (SMG) partnership with MP. Indeed, SMG has attested to the success there. That is unquestionable IMHO. However, people need to consider / remember that 1) SMG is a MP shareholder, which makes them inherently biased and 2) the relationship is based on MP prominently pushing SMG to MP subscribers.
This is not something they can do for every theater. In fact, they can only put one theater at the top of their listings in any given area. That means that the SMG success can not be broadly repeated, which means that MP will have a hard time justifying a 20% partnership in the same way that they have with SMG. They can certainly win a lot of business with other assurances, but only one theater can be truly favored in any given area.
In closing, I entered the CNK call with optimism that MP had made an impact there. Even after listening to the call, I felt that CNK was suspiciously dodging the MP effect. However, once the numbers were run, it became clear that CNK (arguably the best-run major public chain) had a great quarter because they’re arguably the best-run major public chain (augmented by strong cinema-industry trends in Q4, which every theater is saying has continued here into Q1).
As a result, I added to my AMC position. They report on Thursday. I’m betting that they continue the trend of industry beats, regardless of whether Ted was right about the impact they are having there. Frankly, I hope he’s right!! I’ll be able to sell my AMC at a profit and shift the proceeds into HMNY. We’ll see…
In other news, I’ve been digging through the Canaccord report and have been shaking my head all the way. It’s simply terrible. The numbers don’t make sense and the analysis was quite weak. That shouldn’t come as a surprise to anyone who looks into the background of the author (Austin Moldow, who is still just an associate analyst at Canaccord). For more details on him, do a LinkedIn search and see for yourself.
I’ve traded messages and spoke live to many HMNY optimists over the past few days. In each case, I tell them that I hope they can make me feel optimistic too (I can make a lot of money if this is really a winner… but very little if it’s a terminal loser). Sadly, one-by-one, my data-points trump (and dwarf) theirs. It inevitably leads to an admission that they haven’t done all of their homework (nor analyzed the data, as opposed to just accepting it at face value). They promise to come back to me once they do.
To be honest, I didn’t expect anyone to change my mind, but I was shocked at the lack of knowledge and analysis that exists on this name. It all makes me want to short HMNY.
For now, I’m not going to do that. However, I definitely have no choice but to continue avoiding them.
Disclosures / Disclaimers: I am long AMC stock and hold bullish AMC call and written put positions. However, I do not encourage or recommend for anyone to follow my lead on these or any other stocks, since I may enter, exit, or reverse a position at any time without notice. I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article.
The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Similarly, the disclosure above may state that I am long or short shares of the companies mentioned herein, but should not be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. That disclosure is true as of the time the article is placed in queue for publication, but it is possible (or even likely) that I might be buying and/or selling the stocks mentioned herein immediately thereafter or at any other time, regardless of (and possibly contrary to) the content of this article or this website’s timing of its release. The disclosure will not be updated following submission of the article and may be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. I wrote this article myself and I receive no compensation for writing it. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
Long-time readers should note some significant changes in how I communicate in the public domain. The sole purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses. Accordingly, this document should not be construed as an endorsement of the companies or securities discussed herein. The disclosure below is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.