Rich Greenfield, media and technology analyst at LightShed, joins Yahoo Finance Live to discuss his $0.01 price target for AMC stock, why he thinks AMC’s CEO is misleading shareholders, and the outlook for movie theaters and the streaming space.
Editor's note: At one point, Greenfield asserted that AMC CEO Adam Aron "sells every share that he gets granted or vests in personally." AMC pushed back on this claim, telling Yahoo Finance: "Adam currently owns 793,974 fully vested AMC shares. At today’s stock price, that’s about $19 million in stock that he has not sold."
- A number of media companies reporting earnings last week, with meme stock AMC giving us a flavor of the movie industry. The big story for them-- the issuance of dividends on new preferred shares called APE, A-P-E, of course. The company's CEO Adam Aron telling Yahoo Finance earlier it's a counter to the haters who have called for a lower stock price. Take a listen.
ADAM ARON: There are securities analysts, whose livelihoods depend on being accurate in forecasting stock prices, who've called for our share price to fall to a penny or $1 or $2. They don't want to see our stock go up. At last count, there were 100 million short shares out there. I don't think they want to see our stock price go up. But that's different from people who are just skeptical.
- One of those people that he might be referring to is LightShed Partners media and technology analyst Rich Greenfield, who joins us live alongside our media reporter, Ali Canal. Thanks so much for taking the time, Rich. You want to respond? You have a one penny price target on this stock.
RICH GREENFIELD: You know, Adam does a great job of spinning reality and is sort of is that PT Barnum. And he's sort of found followers who don't really understand what they're investing in. And I think that's really the scary part because what these new APE shares essentially allow him to do is to dramatically dilute shareholders on a recurring basis, and he can issue billions of these new shares and dilute current shareholders down.
And so while the market has reacted positively over just Adam saying it's a positive, the reality is this is a company that continues to really struggle. I mean, box office-- for all of the excitement over the big movies that have come out and people saying the box office is back, let's just be clear. Box office is down 15% in Q3 from the average of 2016 to 2019's box office, so pre-pandemic levels. Year-to-date box office is down over 30%. The pipeline looks pretty dry over the course of the next couple of months.
So this is a story where, yeah, consumers are going back to see a few movies. There's definitely big movies are performing. But as you saw this past weekend, if you're not one of those three or four movies, movies are just getting destroyed financially. And so this is really have and have-not. And the haves are very few and not enough to support Adam's business.
- Well, I guess the other side of the coin, though, is that even if it dilutes shareholder value, it puts AMC in a better capital position maybe to weather some of those secular trends. So does that still value a one cent valuation that you have as far as a price target here? I mean, are movie theaters going to be dead at some point? Is that the call?
RICH GREENFIELD: Well, it's not about being dead. It's about there is-- you have two problems. You either have a substantial amount of debt weighing on this company financially, or you have to dilute the value of what a share is to something that is a small fraction of where you are today. There really isn't another solution.
So no, they're not going away. There's far too many movie theaters in this country. You still have tens of thousands of movie theaters that you don't need nearly that many in a world of streaming. You need far fewer than where we are today. And so this is not a referendum on the movie theater industry. And I think that's a lot of what the retail holders of AMC have gotten wrong.
This is not about whether AMC will continue to exist, but just pull up the valuation of Cinemark. Cinemark is at a small fraction of AMC's valuation. Same company, roughly same profitability on an overall basis, and yet it is a small fraction of AMC's market cap enterprise value, which I just think speaks to the fact that there is this huge disconnect between reality and where AMC is trading today.
And look, Adam knows it. The beauty of what Adam's done is he's literally gotten all of these investors to buy shares as he dumps his own personal shares. Every time he gets a new share, he dumps it into the market, so he's looking to personally benefit from this as much as possible.
- So can I just ask, do you think it's healthy in a situation like this where you have CEOs lobbing tweets out there about all this back and forth that includes you as well? Is this type of dialogue healthy in a capital markets where it's healthy-- it's OK to have people on different sides of the trade. But, I mean, this is a dialogue that I didn't expect to have this morning.
RICH GREENFIELD: Look, Adam can say whatever he wants. I think he's very disingenuous with how he misleads shareholders. And at the same time, where he says, well, I'm not really selling, I'm just diversifying, even though he sells every share that he gets granted or vests in personally. So again, I think it's very disingenuous. I think it's very dangerous for the public markets in terms of what he's doing as a CEO. But look, it's a free country. He's allowed to have his own view of what the shares are worth.
ALI CANAL: And Rich, what if we take a look at the broader picture, right? In that interview, Adam Aron predicted that ticket volume will, quote, probably be back to pre-pandemic levels by 2023 or 2024 at the latest. What's your take on that timeline, considering there has been a shift in consumer behaviors?
RICH GREENFIELD: Look, the other thing he doesn't talk about is that windowing is very different, right? Now, movies are coming out-- movies that are being released in theaters are coming to streaming services far sooner. There's a tremendous amount of easy-to-access content on these streaming services.
It's just I think that there will always be a reason to go see a huge movie in a movie theater. I don't think that behavior is ever going away. But the bar to get you to leave your home and go see a theater is higher than it's ever been, and it's going higher and higher.
I mean, look, just this weekend. John Lassiter of Pixar fame now works at Skydance Animation, which is part of David Ellison's Skydance Productions. They have an exclusive distribution deal with Apple. And so you were able to see a Pixar-like animated movie at no incremental cost as part of your Apple TV+ subscription from the comfort of your own home this weekend.
And so there's just big changes in how movies are being released. And it doesn't mean you're not going to go. It just means you're going to go less often and be more selective in terms of quality. And I think that is the huge change that we've seen and that Adam and the team at AMC just continue to not acknowledge.
ALI CANAL: And someone who is bullish on the theatrical experience is Warner Bros. Discovery CEO David Zaslav. And we heard from the earnings report that he's really leaning into the theatrical. He also had made it pretty obvious that he knows how to cut costs. But when the growth trajectory for a lot of these media companies is more muddled than years past, and there's a lot of experimentation with gaming, live events, that tie-in, again, to the box office, how should Zaslav approach this new WBD strategy and instill confidence that he also knows how to spend money in addition to cutting costs?
RICH GREENFIELD: Well, look, there is no doubt that putting movies directly onto streaming is essentially betting on the future. It's a huge investment because you don't-- mathematically, you don't earn the return on putting a movie directly onto HBO Max in the same way that you have releasing it in the theaters, selling it on DVD or whatnot, and then putting it onto a streaming service. So I think what you're really seeing at Warner Brothers is for a company with essentially 4 and 1/2 to 5 times leverage in a very challenging environment for media companies.
I mean, look, this is an entirely new territory for media companies, where cable network revenues are now appear to be declining industrywide. Everyone is taking evasive action and rethinking their strategy. And I think for Warner Brothers, are they embracing theaters because it's the right thing to do? Probably not.
They're embracing movie theaters because financially it makes the most sense for them. And right now with their leverage, they need to be very focused on driving free cash flow and deleveraging. And I think that means to them embracing theaters and making sure they make as much money on every film, versus the prior management team, which was taking a-- we're going to invest heavily in our HBO Max. It's going to be the North Star of everything we do. They're moving away from that being the North Star. I actually think it's a pretty good buy signal for Netflix. Seeing HBO Max pull back should give investors a lot of confidence about Netflix over the course of the next 12 months.
ALI CANAL: And I also want to get your take on Disney. That company reports earnings after the bell on Wednesday. There's been a lot of talk about the future of ESPN+, where Disney could take that platform, also a big question about their future guidance. Are they going to cut guidance based on the differences that have happened across the streaming landscape? What are you watching for in that earnings report?
RICH GREENFIELD: I think we're really trying to figure out now-- Bob Chapek, CEO of Disney, who took over for Bob Iger, he just got a new three-year contract. I think everyone who owns or looks at Disney is now focused on who is Bob Chapek? What's the plan? He's got three years now in terms of contract. What are we going to see?
Is he going to keep ESPN and ABC? Is he going to transform what Disney looks like? I mean video gaming. He's talked about the metaverse. He seems to talk about leaning Disney into the future.
Obviously, the future is not broadcast TV and cable networks. So I think we're really trying to get a sense of what does the future of the Walt Disney Company look like? What's his strategy? Are they going to wait until 2024 to own the rest of Hulu? Do they try to do something sooner-- selling, buying? I mean, there's just so many big, open questions.
You brought it up with ESPN+. Why do we have three services-- Disney+, Hulu, ESPN+. There's a lot of big, strategic questions sitting in front of Bob Chapek. Hopefully, we'll start to get a little bit of a glance at what those look like on Wednesday night.
- Yeah, and broadly speaking, Rich, I mean, you talk about the challenges that a lot of these media heads have with streaming revenue not being-- it's still very costly right now, with regular legacy revenues also declining. You have a good blog on your site about that. But Rich Greenfield, partner and media and tech analyst at LightShed Partners, thanks so much for joining us. And our thanks to Ali Canal for joining the conversation as well. Appreciate it.