Bankruptcy Warning – Is Cineplex Stock (TSX:CGX ) Headed to $0?

Despite a rally in recent weeks, shares of Cineplex stock (TSX:CGX) are down approximately 72% this year.

| More on:

The year 2020 was supposed to be a great year for moviegoers – with many potential blockbusters hitting the big screen.

Instead, this year has turned out to be a nightmare for studios, theaters, and fans. The COVID-19 global pandemic decimated the entire entertainment industry — and theaters like Cineplex (TSX:CGX) were especially hard hit.

Cineplex stock down 72% this year

Despite a rally in recent weeks, shares of Cineplex are down approximately 72% this year. The stock was trading around $34.00 at the beginning of January. As of this writing, shares of Cineplex are trading at $9.49. Over the past year, the stock has traded as low as $4.32.

Cineplex saw a 95% decline in revenue in its second quarter. When the pandemic began in March, movie theaters across the country were forced to close. The fact that Cineplex earned any revenue at all was due to the re-openings of some theaters.

With the second wave of the coronavirus hitting Canada, more stringent lockdowns appear eminent, and it looks like these restrictions may continue well into 2021.

More bad news for Cineplex

While investors hoped that promising news about a vaccine would breathe new life into Cineplex stock, last week more bad news rocked the industry.

On December 3, AT&T’s WarnerMedia announced that all 2021 theatrical releases from Warner Bros. will debut simultaneously on HBO Max.

This announcement sent shock waves through the industry. Shares of AMC Entertainment Holdings (NYSE:AMC) tanked 16% immediately following the news.

Earlier in the year, AMC warned that it could run out of cash by the end of 2020 or early 2021. Investors in AMC worried about the risk of bankruptcy. AMC ended its third quarter with over US$5.8 billion worth of debt on its balance sheet.

In response to the move by WarnerMedia, AMC CEO Adam Aron said, “Clearly, WarnerMedia intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max start-up. As for AMC, we will do all in our power to ensure that Warner does not do so at our expense. We will aggressively pursue economic terms that preserve our business.”

Movies go direct to streaming services

The closure of theaters has caused movie studios to get creative with their distribution channels.

Disney was the first major studio to experiment with “direct-to-streaming,” when its Pixar animated movie, Onward, debuted on Disney+ instead of the big screen. Since then, other studios have followed suit.

Disney’s much anticipated live-action remake of its popular animated film Mulan debuted on Disney+ last week. The company released the US$200 million film on its subscription steaming service for a one-time fee of US$30.

NBC Universal negotiated with theatre chains like AMC and Cineplex, to show movies exclusively in theatres for a shorter period than normal, before releasing the films to on-demand platforms.

Unfortunately, none of these plans by major studios bodes well for Cineplex.

The bottom line

We all hope that the release of a vaccine will allow us to return to some normalcy in 2021, but it may be too late for Cineplex.

While theatres may be allowed to fully reopen some time next year, time will tell if and when the public will feel safe returning to theaters. And while there may be some pent-up demand from hard-core movie fans, many patrons may feel more comfortable watching blockbusters from the comfort of their couches.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cindy Dye has no position in any of the stocks mentioned. David Gardner owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2021 $135 calls on Walt Disney.

More on Top TSX Stocks

bulb idea thinking
Dividend Stocks

Is Fortis Stock a Buy for Its 4% Dividend Yield?

Want a great long-term stock with defensive appeal and a tasty dividend yield? Fortis(TSX:FTS) has all that and more.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Top TSX Stocks

Top Canadian Stocks to Buy Right Now With $7,000

Discover two shining stars among the top TSX stocks of 2024. Hammond Power Solutions (TSX:HPS.A) and one glittering gold stock…

Read more »

happy woman throws cash
Tech Stocks

2 Stocks That Have Created Millionaires, and May Continue to Do so

Unlock the secrets of millionaire-maker stocks and start building your fortune today. goeasy (TSX:GSY) and another TSX stock remain great…

Read more »

Tractor spraying a field of wheat
Top TSX Stocks

5 Top Stocks to Buy in October [PREMIUM PICKS]

Here are five hand-picked stocks the team at Motley Fool Canada thinks are particularly smart investments this month.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Top TSX Stocks

The 3 Best Stocks to Buy in Canada Right Now for the Long Haul

Looking for some "forever" stocks? Consider these for growth potential and their dividends.

Read more »

Top TSX Stocks

The Best Canadian Stocks to Buy With $7,000 Right Now

Want some of the best Canadian stocks to buy for your portfolio? Here's a trio that can provide growth and…

Read more »

A plant grows from coins.
Stocks for Beginners

Create a Pension Passive-Income Stream With This TSX Stock

Want to build a passive-income stream? This one stock can provide a monthly distribution and stellar growth potential that you…

Read more »

Top TSX Stocks

Here Are My Top 4 TSX Stocks to Buy Right Now

TSX stocks like Cineplex and Tourmaline Oil remain attractively valued with good prospects ahead, making them among my top picks…

Read more »