Cineplex (TSX:CGX) Investors: Get Ready for a Bumpy Ride

Cineplex (TSX:CGX) is counting on the market (and its business model) to recover to its former glory. Here’s what that means for Cineplex investors.

| More on:
Make a choice, path to success, sign

Image source: Getty Images

Earlier this month, I’d mentioned that summer blockbusters wouldn’t be enough to save Cineplex (TSX:CGX). That position still holds true, and, if anything, the conditions for recovery are worse than previously thought. Here’s what that means for Cineplex investors.

From bad to worse?

Cineplex was already facing declining numbers prior to the onset of the pandemic. Customers are increasingly turning towards streaming services to catch the latest Hollywood blockbusters. There really is no comparison; customers can typically get a month of unlimited streaming access for less than a single movie ticket. Throw in the convenience of accessing that content at any time from an increasing number of devices, and you have an attractive offering.

If that weren’t enough, many of those streaming businesses are throwing billions at developing their own content. Apart from attracting a growing number of A-list stars, those streaming studios hold exclusivity over their own content on their streaming platform.

Again, the losers in this scenario are traditional theatres, which isn’t good news for Cineplex investors.

To make matters even worse, many of those streaming platforms are now releasing Hollywood blockbusters directly onto their platforms. We’ve already seen this happen with several much-anticipated movies over the past year. Examples include Wonder Woman 1984, Godzilla vs King Kong, and Mortal Kombat.

Why that model is changing

Space Jam: A new Legacy and Black Widow are two other recent releases that stand to greatly impact that traditional movie-and-popcorn business.

Let’s start with Black Widow. Following a series of COVID-related delays, the movie dropped into both theatres and on Disney+ earlier this month. In that first weekend, the movie earned a whopping US$80 million. That may not seem like much for an MCU film, but recall that many theatres remain closed or at limited capacity. In other words, it was a great opening.

Unfortunately, the second weekend at the box office saw the film bring in just US$26.3 million. The main culprit of that drop, according to the National Association of Theatre Owners (NATO) was the simultaneous (streaming and theatrical) release model adopted by Disney, the studio behind Black Widow.

Under that model, subscribers pay a single upfront charge ($35 in Canada) to stream the blockbuster. That’s still far less than what most customers would pay to watch the movie in a theatre if you factor in a family and concessions.

With COVID numbers starting to rise in many markets again, that could lure more subscribers to play it safe and stream the movie from home (and save some money).

Now, let’s take a look at the latest Space Jam movie. That movie is geared towards younger audiences, many of which are not yet vaccinated. That factor alone makes a compelling case to watch the movie at home instead of within a theatre.

Cineplex investors: Your move

Cineplex isn’t alone in facing a shaky future. The COVID-19 pandemic changed many of the long-established norms in our daily lives. Some of those may return post-pandemic, others such as the movie-and-popcorn business may evolve into something new.

That new element could be Cineplex’s efforts to diversify its business. This includes initiatives both related and unrelated to its core movie business. A prime example of this includes the Cineplex store, which is an effort to counter the proliferation of streaming services. The same could be said of Cineplex’s Rec Room concept. The live entertainment venues proved to be popular prior to the pandemic and should provide a viable revenue stream post-COVID.

Unfortunately, that recovery, and by extension, growth is still a fair distance off, which isn’t good news for Cineplex investors.

While no business is without risk, the risk involved in investing in Cineplex at this juncture may just be just too great in my opinion. Fortunately, there are plenty of other stocks to consider, many of which offer an impressive dividend.

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 Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

More on Investing

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »

telehealth stocks
Tech Stocks

Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »