Are you invested in Cineplex (TSX: CGX)? Canada’s largest entertainment company has remained stuck since before the pandemic in a perpetual state of being ready for a recovery.
As the summer blockbuster season kicks off, Cineplex stock may finally get the recovery it desperately needs. And that could be good for investors.
Source: Getty Images
The problem with Cineplex
Cineplex’s movie segment follows a simple business model that’s been around for over a century. In short, Cineplex charges an admission to an exclusive show and then offers patrons concessions to enjoy (at a steep markup).
While there are many problems with that aged model, at the forefront is the growing variety of alternative methods to enjoy that show, all of which are eroding that exclusivity aspect — more specifically, streaming and on-demand services.
Those services charge the equivalent of a single movie ticket (or less) for an entire month of unlimited access.
The other, equally concerning problem is the quality of content. Cineplex is largely at the mercy of whatever comes out of Hollywood. In recent years, we’ve seen both writer strikes and a lack of quality content emerging from the studios, leading to less-than-stellar box office results.
That underlying market volatility and lacklustre box office performance made its way to Cineplex’s stock price. As of the time of writing, Cineplex trades at just over $11. That represents a near 60% improvement over the past year, but it’s still far behind its pre-pandemic stock price.
In other words, something is needed to kick Cineplex stock into recovery.
Let’s talk about Cineplex (and all its parts)
Most Canadians are aware of Cineplex, associating the entertainment company with its massive portfolio of theatre screens across the country. And while Cineplex does offer the largest number of theatre screens, the company offer investors something additional.
That includes Cineplex’s digital media business (known as CDM), which provides digital signage solutions for a variety of brick-and-mortar businesses. That includes everything from fast food menus and banking screens to interactive digital information maps in shopping malls. The segment also includes ad sales, further increasing the appeal of the segment.
Incredibly, Cineplex’s digital media business has customers operating in over 30 countries around the world. That impressive coverage also represents some of the largest, most well-known, and respected names in business.
And that’s not all.
Cineplex also boasts an entire amusement and leisure segment. This includes venue-focused entertainment offerings such as Playdium, the Rec Room and Cineplex Junxion. These venues combine dining, entertainment and gaming into a single experience.
Collectively, these non-theatre segments account for a growing part of Cineplex’s revenue. In fact, in the most recent quarter, media revenue surged 38% year over year, and the amusement and leisure segment saw an equally impressive (and record-setting) 10.5% year-over-year increase.
So, does this mean the market has finally kicked Cineplex stock into recovery? Not quite, but the summer blockbuster season might change that.
Kick Cineplex stock into recovery
The summer blockbuster season could be one of the best opportunities for Cineplex to shine. Following a spring season that included multiple highly anticipated blockbusters such as the Thunderbolts and the Minecraft Movie, there are even bigger movies slated for the summer.
This includes the latest installment from the Mission: Impossible franchise, which opened in May and has already surpassed US$500 million at the global box office. Other franchise favourites, such as 28 Years Later and Pixar’s Elio, both of which came out in the past week.
Finally, that’s not even accounting for other highly anticipated films coming later this summer. That list includes The Naked Gun reboot and Marvel’s upcoming Fantastic Four movie.
In short, Cineplex’s finances are improving, and the company remains highly discounted. More importantly, this summer blockbuster season may finally kick Cineplex stock into recovery.
In my opinion, investors who can handle the risk may be inclined to add a small position in Cineplex (while it’s still down) to any well-diversified portfolio.
