The Motley Fool

Will Cineplex Inc. (TSX:CGX) Rebound on the Success of Avengers: Endgame?

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Avengers: Endgame shattered records at the box office last weekend, drawing massive crowds to the seats at Cineplex (TSX:CGX) theatres, many of which have had bumless seats for a ridiculously long time.

For Cineplex, more Walt Disney magic is exactly what the doctor ordered. The ailing movie theatre company has seen its box office take a major hit to the chin in recent years, as management made its desperate push to diversify away from the box office and towards its entertainment and amusements segment.

In prior pieces, I warned investors of the imminent demise of Cineplex, citing several headwinds that would warrant a severe correction in shares, as video streamers continued to pick up traction. This year, with Disney+ and other big-league streaming platforms coming online, you would think that the issues at the theatrical box office would mount. Given the massive box office success of Avengers: Endgame, however, Cineplex will not only get a much-needed boost to its second-quarter results, but the box office bounce is an encouraging sign to investors that the physical theatres aren’t dead yet.

Content viewers are still willing to go to the movies. Film producers just need to put their money where their mouth is and produce content that’s deemed as “must-see.” However, given the fact that most theatrical releases have been a crap-shoot in recent years, theatrical releases are becoming less attractive to major producers, including Disney.

“Walt Disney Co. productions seemed to have the magical ability to get butts in the seats of theatres, but this clearly wasn’t the case when it came to the latest Star Wars film, Solo, which fell far short of box office expectations,” I said in a prior piece.

Even a franchise as powerful as Star Wars wasn’t enough to get folks off their couches. The stay-at-home economy is very real, and to get butts off couches and into theatre seats, producers not only need potent franchises (like Star Wars or Avengers), they need to score rave reviews to go with some help from lady luck. Moreover, dominant franchises like Star Wars need to release films on a less-regular basis to avoid exhausting the hype of fans.

Sure, a Star Wars and Marvel film every year sounds like a guaranteed hit on paper, but if the quality doesn’t live up to the name, the number of bums in seats will be lower per dollar invested in producing each film.

Thus, I don’t think investors should pile into Cineplex stock at these levels, because one hit movie is not the start of a trend. Avengers: Endgame, I believe, is an anomaly. For those who are looking to play Disney’s coming box office hits, it’d be a better idea to just bet on Disney stock itself. I don’t see anything that’ll reverse the negative trend at the box office.

Moreover, when you consider the fact that theatrically released Disney films will be headed to Disney+ shortly after, some frugal folks may be more willing to wait a few months to enjoy the movie they’ve been “dying” to see in the comfort of their own home, rather than having to put up with Seat-Kicker Sally or Tommy Texter in theatres.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of Walt Disney. David Gardner owns shares of Walt Disney. The Motley Fool owns shares of Walt Disney. Walt Disney is a recommendation of Stock Advisor Canada.

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