GameStop and AMC basic financials ‘remain concerning,’ analyst says

Despite improved balanced sheets, the basic financials of meme-stock darlings GameStop Corp. and AMC Entertainment Holdings Inc. are a trigger for concern, in line with Benchmark analyst Mike Hickey. 

“Despite meme-driven retail investor interest that also boosted GameStop shares, the fundamental financials of these companies remain concerning,” Hickey wrote in a word launched Friday. “GameStop reported an adjusted quarterly net loss of $9 million, while AMC is expected to report a full-year 2023 loss of $386 million.”

“Although stock sales following the meme rallies have improved their balance sheets, analysts question the long-term viability and valuations of both companies,” Hickey added. “GameStop faces an existential threat from the digital transition in the gaming industry, and AMC’s operational woes are closely tied to the lingering impact of the COVID-19 pandemic.”

Related: AMC’s inventory rises premarket after Friday’s record-low shut

In July, Statista reported that film theaters within the U.S. and Canada had offered round 825.2 million tickets in 2023, surpassing the 2022 determine of 812.79 million tickets and nicely above the pandemic-impacted determine of 492.34 million tickets in 2021. “However, despite the growth, the 2023 figure still falls short of the nearly 1.23 billion movie tickets sold in 2019, before the COVID-19 pandemic hit the world,” Statista added in a word.

Benchmark has a maintain ranking for AMC
Of eight analysts surveyed by FactSet, 4 have a maintain ranking and 4 have a promote ranking for the movie-theater chain.

AMC shares rallied final month after the corporate swung to a revenue and reported its highest quarterly attendance because the fourth quarter of 2019. However, AMC CEO Adam Aron has repeatedly warned that the corporate faces liquidity challenges.

Related: AMC’s inventory will get a Taylor Swift enhance as Eras Tour film tickets go on sale

After a months-long courtroom battle, AMC accomplished its 1-for-10 reverse inventory break up in late August. Last week the corporate filed a prospectus for the sale of as much as 40 million shares in an try to spice up its liquidity. The submitting despatched AMC’s inventory to a record-low shut Friday, however the shares rose in early Monday buying and selling. AMC shares are down 0.7% Monday afternoon.

As of June 30, 2023, AMC’s money place was $435.3 million excluding restricted money of $22.9 million. The firm’s obtainable liquidity was $643.4 million.

The movie-theater chain has been on a roller-coaster trip over the previous few years that took it from beleaguered pandemic sufferer to meme-stock phenomenon. AMC used the steep rise in its share value to faucet into fairness and debt markets, elevating $917 million in January 2021.

Related: AMC reverse inventory break up, APE conversion take away ‘overhang,’ analyst says in improve

Last month, analyst agency Wedbush upgraded AMC to impartial from underperform, citing the reverse inventory break up, conversion of AMC Preferred models into frequent inventory and “an improving industry backdrop.”

AMC describes itself as the most important movie-exhibition firm within the U.S. and the world, with roughly 950 theaters and 10,500 screens throughout the globe. The firm’s inventory has fallen 80.2% in 2023, in contrast with the S&P 500 index’s
achieve of 16.6%.

MarketWatch has reached out to AMC with a request for remark.

Related: GameStop’s demise may come ‘later this decade,’ Wedbush warns

GameStop reported better-than-expected second-quarter outcomes final week, boosted by worldwide gross sales and what the corporate described as “a significant software release.” The videogame retailer can be ramping up its efforts to manage prices. GameStop’s promoting, normal and administrative bills have been $322.5 million, or 27.7% of internet gross sales, in contrast with $387.5 million, or 34.1% of internet gross sales, in the identical interval final yr.

However, GameStop nonetheless faces loads of challenges, in line with Wedbush analyst Michael Pachter. “While we laud interim management’s plans to control costs further, it is difficult (if not impossible) for a company to ‘save its way’ to prosperity, particularly in the face of an existential threat such as the one faced by GameStop,” he wrote in a word final week. “Digital downloads continue to grow, and unlike online sales of pet food (involving a physical product that requires logistical expertise to warehouse and deliver), video games can be downloaded to any of the game consoles that GameStop’s customers use to play their games.”

Other challenges confronted by GameStop embody far fewer huge console-game releases going ahead, with a noticeable shift to PC video games, in line with Pachter. The analyst additionally highlighted the expansion of gaming subscription companies and GameStop’s “lack of a clear strategy to enter new categories that have the potential to drive growth.”

Related: GameStop’s inventory jumps after outcomes high estimates, helped by worldwide positive aspects

“The demise of GameStop is outside the 12-month window we use for our price target, but we expect the company’s demise at some point later this decade,” Pachter added.

Wedbush maintained its underperform ranking for GameStop and lowered its value goal to $6 from $6.20. Of two analysts surveyed by FactSet, one has a maintain ranking and one has a promote ranking for GameStop.

The firm’s inventory has fallen 7.5% in 2023. MarketWatch has reached out to GameStop with a request for remark.

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