EUR 850.00 For Business Accounts Only

Morningstar | AMC Starts 2019 on a Strong Note; Ad Revenue Benefits From Strong Originals Slate

AMC continues to post strong results as first-quarter revenue and EBITDA beat consensus expectations. Advertising revenue grew by 6% in the U.S. as the firm was able to push through higher pricing once again. We are maintaining our narrow moat rating and our fair value estimate of $65. With shares trading in 3-star territory, we would suggest investors wait for a pullback before investing.

Total net revenue expanded by 6% year over year to $748 million. National networks posted 3% year-over-year decline as the 6% improvement in ad revenue was more than offset by the 7% decrease in distribution revenue. Affiliate fee revenues rose low single digits year over year, down from midsingle digits in the fourth quarter due to renewal timing. Content licensing declined once again as the timing of deals is not seasonal. Advertising revenue growth was driven by additional episodes and higher ratings for The Walking Dead along with double-digit increases at the smaller networks. International and other revenue grew by 54% to $171 million due largely to the acquisition of Levity and RLJ Entertainment. Overall adjusted operating income grew by 8% year over year to $293 million and adjusted operating margin improved by 100 basis points at 37.4% as revenue growth and cost controls offset the ongoing programming cost growth.

The firm’s overall long-term growth continues to depend on the development of new original scripted content. The in-house studio will produce 15 shows for its networks and streaming platforms in 2019. While AMC does own streaming platforms, we expect the firm to be a willing seller of the streaming rights for many of its shows to platforms like Netflix, Amazon, and some of the soon-to-be launched platforms from WarnerMedia and NBCUniversal. As management noted on the call, AMC will focus its streaming efforts on specific genre or niche platforms. We believe that AMC does not have library or the ability to scale up original content production to the levels necessary to create its own general SVOD service. Thus, the firm’s long-term success depends on its networks like AMC and BBC America to create programming that continues to attract adults in the key demographic of 18 to 49 years old. The ongoing competition among the SVOD platforms for must-have content should allow AMC to benefit from a longer revenue tail from its investment in original content.