Will Summer Blockbusters Save Cineplex (TSX:CGX)?

The summer movie season is now in full swing, but will those summer blockbusters save Cineplex (TSX:CGX) and return it to profitability?

| More on:
question marks written reminders tickets

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The COVID-19 pandemic had an impact on all businesses in various ways. Among the most impacted businesses were movie theatres. Cineplex (TSX:CGX) is the largest movie theatre chain in Canada and bore the brunt of that impact on its business. But now that theatres are beginning to open, will the upcoming summer blockbusters save Cineplex?

Cineplex needs a lot of help

While the focus has been on surviving the pandemic, Cineplex’s issues stem from far before COVID-19 forced theatres to close. Specifically, I’m referring to the rapid and continual adoption of streaming services. In short, streaming customers can now stream Hollywood blockbusters to their devices, smart TVs, and tablets. Keep in mind that a month of unlimited streaming costs less than a single movie theatre admission.

This effectively removes the exclusivity appeal that large theatre chains such as Cineplex once counted on as a defensive moat. If that wasn’t enough to worry about, Cineplex has two other streaming-related concerns to worry about.

First, there are many more streaming services on the market today than even pre-pandemic. Those streaming providers are seeking out unique and fresh content to draw customers to their platform (and off traditional means). This leads me to the second point – both streaming companies and various Hollywood studios have seen the potential of that model. In short, there are streaming companies that are now creating their own content, and studios launching their own streaming services.

Unfortunately for Cineplex, both of those endeavours will tend to bypass the big-screen altogether.

What about summer blockbusters?

Now that the summer season is in full swing and COVID-19 rates are dropping, studios are once again releasing movies. For those investors that see a Cineplex recovery as beginning to take form, this is good news. Unfortunately, those summer blockbusters will save Cineplex remains to be seen.

Many of those big-ticket movies will be released concurrently to theatres and streaming services. Prime examples of this include Space Jam: A New Legacy, Black Widow, Cruella, Dune, the Suicide Squad, and No Time to Die. If that weren’t enough, depending on the streaming platform, some of those movies could be free to subscribers.

This leaves Cineplex in a very questionable position. Yes, there will be customers returning to watch the best movies on the Big Screen. But there will also be a contingent of would-be customers that will stream the latest from the comfort of their homes.

The only sure thing is that Cineplex’s once defensive appeal has eroded almost entirely. The company’s transition away from the movie-and-popcorn model as its primary revenue driver will also need to resume.

Should you buy Cineplex?

There are those investors who see Cineplex as an undervalued long-term opportunity. Many of those investors also see a point where Cineplex will resume its once-lucrative monthly dividend. Unfortunately, I don’t see either happening anytime soon.

In my opinion, Cineplex will recover from its current predicament, but to attain the profitability it once had will take a much longer time. The fact that theatres are reopening is great, but not everyone will want to run back into tightly packed enclosed theatres.

In other words, at this point, there are far better options to consider instead of Cineplex. Many of those options also continue to provide a handsome dividend, which is an important point for long-term income investors.

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

Supermarket aisle with empty green shopping cart
Investing

$183 for Toilet Paper and Cups: Why We Love Costco Stock

"I literally went up there to get two things."

Read more »

A worker gives a business presentation.
Investing

TFSA Investors: 2 Top Stocks to Buy Before They Rally Any Further

Although plenty of top Canadian stocks have been rallying recently, these two still offer great value and are perfect for…

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

3 TSX Stocks With High Dividend Yields

Are you looking for a great opportunity to bolster your portfolio? Here are three TSX stocks with high dividend yields.

Read more »

financial freedom sign
Stocks for Beginners

1st-Time Investors: 2 Cheap Canadian ETFs to Buy for Financial Freedom 

Investing for the first time but don’t know where to start? Here are two cheap Canadian ETFs that can grow…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Oil pumps against sunset
Energy Stocks

2 Top Canadian Energy Stocks to Buy Offering Dividend Yields Above 6%

These two top Canadian energy stocks are excellent long-term investments and offer unbelievable dividend yields if you buy them today.

Read more »

Target. Stand out from the crowd
Investing

4 TSX Stocks I Own and Will Buy More of if They Fall

These are my four top choices of TSX stocks that may dip in the future, but will pay me back…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

The 2 Best Canadian Stocks for Beginners Right Now

Stock market beginners in Canada could kickstart their investing journey by buying these two stocks right now.

Read more »