The entertainment industry was hit hard by the pandemic-induced shutdown of movie theaters and production studios in 2020. The global theatrical and home/mobile entertainment market revenue totaled $80.8 billion, representing the lowest figure since 2016.
While the industry started recovering last year, the rapid spread of the omicron variant has renewed uncertainty regarding the industry’s prospects. Hollywood executives are worried that the concerns over the spread of omicron will turn audiences away from movie theaters. With the number of COVID-19 omicron cases on the rise, outpacing previous records, the industry could struggle to stay afloat.
However, a study has shown that the 25 most popular meme stocks had accumulated $80 billion in losses for investors over just four weeks. Meme stocks are usually fundamentally weak, and their gains are based on social media attention and retail investor sentiment. So, given the uncertainty surrounding the entertainment industry, we think popular meme stocks The Walt Disney Company (DIS) and AMC Entertainment Holdings, Inc. (AMC) could be best avoided now.
The Walt Disney Company (DIS)
Through the two broad segments of Disney Media and Entertainment Distribution; and Disney Parks, Experience, and Products, Burbank, Calif.-based DIS provides film and episodic television content and streaming services and operates theme parks and resorts.
On Nov.8, DIS, IMAX Corporation (IMAX), and Xperi Holding Corporation (XPER) subsidiary DTS announced a collaboration to stream popular Marvel titles in IMAX's Expanded Aspect Ratio at home. However, the partnership might not result in substantial immediate gains.
For its fiscal year ended Oct. 2, DIS’ cash provided by operations decreased 26.9% year-over-year to $5.57 billion. Its cash provided by financing activities declined 151.7% from the prior year to a negative $4.39 billion. And its cash, cash equivalents, and restricted cash balance for the year came in at $16 billion, down 10.9% from the previous year.
Analysts expect DIS’ revenue to increase 24.5% year-over-year to $74.19 billion in fiscal 2022.
The stock has declined 12.4% in price over the past year and 12.1% over the past six months to close yesterday’s trading session at $155.73.
This bleak outlook is reflected in DIS’ POWR Ratings. The stock has an overall D grade, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
DIS has a Value, Sentiment, and Quality grade of D. In the 18-stock Entertainment – Media Producers industry, it is ranked #13. The industry is rated F. Click here to see the POWR Ratings for DIS (Growth, Momentum, and Stability).
AMC Entertainment Holdings, Inc. (AMC)
AMC in Leawood, Kans., operates in the theatrical exhibition business. The company owns, operates, or has interests in theaters. It functions across several theaters and screens in the United States and globally.
On Nov. 15, law firm Miller Shah LLP issued a notice stating a class action lawsuit settlement, with a Feb. 10, 2022, hearing date. According to the settlement, AMC, on behalf of all defendants, is expected to pay $18 million in exchange for the dismissal of the suit without any lingering prejudice.
AMC’s operating costs and expenses increased 14.3% year-over-year to $908.40 million in its fiscal third quarter, ended Sept. 30. Its net loss attributable to AMC came in at $224.20 million, while its loss per share stood at $0.44.
Analysts expect AMC’s EPS to remain negative until next year (fiscal 2022). The stock has declined 50.9% in price over the past six months to close yesterday’s trading session at $25.49. It has declined 12.1% over the past month.
AMC’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which translates to Sell in our POWR Rating system. AMC has a Value, Stability, and Sentiment grade of F and a Quality grade of D. In the 9-stock Entertainment – Movies/Studios industry, AMC is ranked #7. The industry is rated F. Click here to see AMC’s additional POWR Ratings for Growth and Momentum.
DIS shares fell $0.01 (-0.01%) in premarket trading Wednesday. Year-to-date, DIS has gained 0.54%, versus a 0.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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