Cineworld shares set to slump after AMC-Universal deal
Shares in the world’s second largest cinema chain look likely to return to March lows after AMC Entertainment and Universal pictures sign deal that reduces films run times in theatres
Shares in Cineworld look likely to return to March lows after AMC Entertainment and Universal Pictures sign deal that reduces films run times in theatres – overhauling an old business model that could hurt cinemas earnings.
The deal essentially shortens the exclusivity of all films produced by Universal Pictures and Focus Features from 75 days in theatres to just 17days, after which the studio is allowed to screen its titles across premium on demand (PVOD) platforms like Netflix, Amazon Prime Video, Disney+ and Hulu.
This new arrangement means that film fans will only have to wait a two and half weeks rather than months to watch their favourite movies from the comfort of their home, which could see the popularity of cinemas wane.
‘The theatrical experience continues to be the cornerstone of our business,’ Universal Pictures chair Donna Langley said in a statement.
‘The partnership we’ve forged with AMC is driven by our collective desire to ensure a thriving future for the film distribution ecosystem and to meet consumer demand with flexibility and optionality,’ she added.
AMC-Universal deal represents ‘paradigm shift’, says Morgan Stanley
The new deal between AMC Entertainment and Universal Pictures is the ‘crystallisation’ of the worst case scenario for Cineworld, according to a recent note from analysts at Morgan Stanley.
The US-based investment bank had previously calculated that the rise in PVOD platforms represents a potential 10% to 30% threat to EBITDA for Cineworld, with earnings likely to be hit even harder this year due to lower-than-expected revenue and profits for cinemas as a result of Covid-19.
Morgan Stanley admitted that other studios and movie theatres were likely to replicate deals similar to AMC Entertainment and Universal Pictures, ‘ending a decades old theatrical model’.
‘AMC is the largest US exhibitor, and it is hard to see this paradigm shift not being replicated by other studios and exhibitors such as Cineworld,’ Morgan Stanley added.
However, AMC Entertainment believes that its deal with Universal Pictures is a win-win situation that will help improve the profitability of both theatres and film studios.
‘We are participating in the entirety of the economics of the new structure, and because premium video on demand creates the added potential for increased movie studio profitability, which should in turn lead to the green-lighting of more theatrical movies,’ AMC Theatres CEO Adam Aron said.
Cineworld shares fall further than Morgan Stanley forecast
Analysts at Morgan Stanley clearly saw the writing was on the wall for Cineworld and its peers back on 1 June, downgrading it to ‘underweight’ and slashing its target price for the stock from 180p to 60p per share.
On 1 June, Cineworld was trading at 79p per share, with Morgan Stanley’s price target representing a potential downside of 24%.
However, the beleaguered cinema chain has seen its share price shed more than 50% of its value since then and looks capable of returning to March lows where it hit 21p per share.
Cineworld is trading at 38p at the time of publication, with the stock down 82% year-to-date.
How to trade stocks with IG
- Create an IG trading account or log in to your existing account
- Enter ‘Cineworld’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
Act on share opportunities today
Go long or short on thousands of international stocks with CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take advantage while conditions prevail.
Live prices on most popular markets