When was the last time that you watched a movie in the theatre? Has the proliferation of multiple ways to consume digital content reduced the need to head to the theatres? Those are the pressing questions that critics of Cineplex Inc. (TSX: CGX) are increasingly asking of themselves and others as justification as to why it might be a good time to pass on the entertainment company.
One thing that investors still fail to realize is that Cineplex still is a great investment option that isn’t going anywhere anytime soon.
Isn’t the movie-and-popcorn model dead?
Cineplex’s harsher critics will argue that the movie-and-popcorn model is a dying breed that is being pushed forward by the growing number of smart devices on which we can view the latest from Hollywood. While there is some truth to the changing tastes of consumers, that doesn’t factor in anything else.
Atmosphere, screen and sound, and concessions are all things that the theatre still offers exceeding anything even the most frugal smartphone-wielding consumer can come up with.
To put it another way, streaming the latest Hollywood blockbuster on your five-inch smartphone with microwaved popcorn is unlikely to be as memorable or enjoyable as watching it on the big screen with friends. Additionally, Cineplex’s VIP offering provides a more premium experience for movie-goers that includes better reclining seating and a full menu.
There’s also the fact that attendance across its theatres, as per Cineplex’s most recent quarterly report, shows attendance up 5% year-over-year.
Finally, there’s the emerging eGaming segment to take into account. When Cineplex invested in World Gaming several years ago, the company set itself up to be a market leader in an emerging entertainment segment that is still very much in its infancy. Tournaments in the eGaming sector that are hosted by Cineplex are already drawing in thousands.
Cineplex’s non-movie business is growing, but critics refuse to mention it
To say that Cineplex is a movie theatre company is inaccurate. The company is technically an entertainment company with tentacles spread across multiple areas of the economy that few investors realize.
Cineplex’s Rec Room venues continue to draw in interest and revenues. The multi-purpose venues can host a variety of events, including parties, corporate-catered events, and live entertainment. In the most recent quarter, the Rec Room accounted for $15.7 million in revenue for Cineplex across its four locations. A fifth location in London opened during the last quarter, and plans for additional locations across the country continue to be added.
Cineplex’s digital place-based media segment is attributed to the growing number of digital menu boards that are appearing in fast-food venues across the country. In the most recent quarter, the segment pulled in $13.9 million, representing a 9.9% increase over the same period last year.
Final thoughts
There’s no denying that Cineplex’s over-reliance on Hollywood needs to be addressed, and the company’s increasing diversification into other areas has already minimized that risk greatly and will continue to do so in the foreseeable future. By way of example, four years ago, box office revenue accounts for nearly 60% of the company’s revenue. In the most recent quarter, that figure has been reduced to 45%.
While this may not be the golden opportunity that critics of the stock are looking for, Cineplex, along with its monthly dividend yield of 4.88% is an impressive, if not tempting option to consider.
