AMC Networks: Streaming expected to drive growth (NASDAQ: AMCX)
AMC Networks Inc. (NASDAQ:AMCX) is a globally recognized entertainment company for its diverse popular and award-winning content. The company distributes content through linear networks, streaming services, as well as content licensing agreements.
With its strong presence through the linear network, the company has an extensive collection of film and television properties. In addition, AMC Networks owns and operates various recognized brands such as AMC, AMC+, BBC AMERICA, IFC, Sundance TV, WE TV, Acorn TV, Shudder, Sundance Now, ALLBLK and IFC Films. Having such a diverse and globally recognized portfolio of brands gives the company an edge over its competitors.
Recently, AMC Networks Inc. has focused on overseas expansion of its streaming business called AMC+, which is expected to add tremendous value to the company’s business model. Over the past year, management acquired Sentai Holding LLCan anime-focused content producer who operated subscription streaming services HIDIVE.
Along with this, the company operates IFC Films, which distributes narrative and documentary films, and operates IFC Films Unlimited. Such a strong presence in the streaming segment has provided a significant advantage to the company’s business model.
As the linear cable television industry faces significant backdrops, revenue from the streaming business has steadily grown as people shift from traditional cable networks to the streaming business, networks AMC can benefit significantly because the management has worked so hard to grow in the streaming segment.
Although due to Netflix’s aggressive expansion (NFLX), Disney (SAY), and other streaming businesses, the overall industry competition has increased significantly, the company remains focused on specifically targeted customers who like the content produced by the company. This kind of targeted approach could give the business model an edge over existing players, as the company offers highly trending and engaging content that could attract a huge number of subscribers to the AMC streaming platform.
Due to the great uncertainty surrounding its streaming business as well as its presence in the rapidly deteriorating linear cable network industry, investors have become very wary of the stock. As a result, the stock price has fallen more than 56% in the past 12 months despite a strong business model and strong cash flow track record.
I believe the company has been very profitable despite its presence in the rapidly deteriorating cable network industry. Due to its targeted streaming strategy and strong brand value, the business could hold its own even with intense competition, and in such cases, the profitability will improve significantly. Due to the recent decline in the share price, the company has become significantly undervalued and offers an attractive opportunity
Over the period indicated, revenues have increased steadily but at a slow pace. Along with this, the net profit increased significantly until 2018, then it fell steadily. The decline was due to higher expenses at SG&A, which resulted from higher subscriber acquisition costs as well as high promotional costs related to the streaming business.
Also note that in recent years the company has focused on buybacks and has repurchased a significant number of outstanding shares. As a result, the total number of shares has increased from 72 million in 2016 to approximately 42 million to date. And due to aggressive buybacks, EPS rose significantly despite a drop in net earnings.
It should be noted that the company has significant debt of over $2.8 billion, as well as current assets of over $2 billion. Additionally, during the period, the cash flow history was very attractive and produced huge cash flow from operations.
Additionally, during the period, the company completed various acquisitions, but many of its acquired companies failed to produce the desired revenues for the company. This included the acquisition of Chellomedia in 2014, which was expected to generate huge revenue for the company, but did not achieve the expected results. Therefore, investors need to keep an eye on acquisition decisions because if the acquired business fails, profitability could be significantly affected.
The company operates national networks that have a significantly high reach among US households and has a history of delivering engaging and engaging content. As a result, it produced a significant number of viewers and customer loyalty. The strong presence in the cable TV segment will help the company grow through the streaming business.
The company is exposed to very large debt and over the next two to three years more than $1.2 billion of long-term debt will come due. The current economic environment has become recessive where inflation is skyrocketing at a significantly high rate, and if the situation persists any longer, it will become very difficult for the company to obtain debt refinancing. And in such cases, the share price could be affected the most.
Additionally, due to the company’s strong operating and distribution track record in the United States and internationally, as well as robust cash flow, credit rating agencies are bullish on AMC Networks Inc. and it. gave very good marks. This shows that the company could get refinancing, but the main concern is that if the company fails to successfully operate its streaming business, its profitability could be hampered. In such a situation, the company could have difficulty obtaining debt financing.
In the last trimestre, third-quarter revenue fell from $810 million to about $68 million. This was mainly due to lower affiliate revenue and lower advertising revenue. At the same time, net profits have fallen considerably, but overall profitability for the nine months of 2022 looks very attractive.
Additionally, the company added approximately 300,000 streaming subscribers and the total number of subscribers reached 11.1 million, representing a 44% year-over-year increase in subscribers. Such significant growth in subscribers shows that the company has a robust business model and can expand its reach at a very high rate.
Due to declining revenue and uncertainty regarding the streaming business, AMC Networks’ stock price has fallen significantly. AMC Networks’ total market capitalization is around $932 million, while it generated more than $272 million in net profit over the past nine months. This shows that the stock has become very undervalued and is selling at just 3.5 times its earnings for the past nine months. From this point on, AMC Networks stock offers significant upside potential. AMC Networks Inc. is a buy.