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Shares of Cinemark Holdings Inc. rallied Thursday, after the movie theater chain reported third-quarter revenue that plunged 96%, but provided upbeat commentary regarding it’s place in a post-COVID world.
The stock CNK, +5.15% initially fell as much as 6.0% within minutes after the open, as the company swung to a narrower-than-expected loss while sales fell well short of Wall Street forecasts. It then pulled a sharp intraday U-turn, rallying as much as 6.4% midmorning before paring some gains.
With the stock up 4.8% in afternoon trading, it has tumbled 73.6% year to date, while the S&P 500 index SPX, +2.24% has gained 8.8%.
With about 75% of its domestic theater circuit reopened as of the end of September, Chief Executive Mark Zoradi talked on a post-earnings conference call with analysts about how the company was coping with the “unprecedented impact” of the COVID-19 pandemic.
Don’t miss: Why cinema will survive the coronavirus pandemic.
The company has implemented a series of new and enhanced cleaning and safety protocols, dubbed “Cinemark Standard,” and includes social distancing measure, a face mask requirement, sanitizing, optimizing air quality and to assign a “clean and safety monitor” for each theater shift.
To appease those who require an additional layer of safety and comfort, Cinemark introduced its “Private Watch Party” concept, in which an entire theater can be reserved, starting at $99 and for up to 20 guests.
Zoradi said the move was met with “resounding positive results,” as the company has sold nearly 50,000 of the private events since it was introduced four months ago.
“Notably, more than 600,000 people have attended a Private Watch Party to date, with a significant portion reporting it was their first time back in the theater since the shutdown, underscoring the opportunity for guests to sample the cleanliness and safety of our theaters,” Zoradi said, according to a FactSet transcript.
Chief Financial Officer Sean Gamble followed on the call by saying he expects cash burn in the fourth quarter to increase to about $75 million per month from $50 million in the third quarter, due to the timing of bond interest payments, but then pull back to average about $65 million in 2021.
But with a cash position of more than $750 million as of Oct. 31, he sees a cash runway that extends into the fourth quarter of 2021. That extends to into 2022, if an expected $100+ million in tax refunds are included. And that timeline doesn’t include expected improvements in operating results as new film content ramps and from additional rent adjustments.
Analyst Eric Handler at MKM Partners reiterated his buy rating and $15 price target on the stock, saying that while third-quarter results were mixed, liquidity was higher than expected.
“We believe investors will be more focused on management’s forward-looking statements about its liquidity and how it is moving forward with its network rather than the 3Q performance,” Handler wrote in a note to clients.
CEO Zoradi concluded the prepared part of the call by addressing concerns that studios may beginning releasing content directly to streaming services. He noted that “a significant portion” of people who watch a film at home had previously seen the movie in a theater, and much of a studio’s revenue is directly correlated to theatrical success.
“We continue to believe an exclusive theatrical window is critically important to the overall media landscape,” Zoradi said. “We’re having active discussions with multiple content providers to evolve windows. We’re advocating for more of a dynamic window that varies with the box office generated which benefits all parties, studios, exhibitors and more importantly, moviegoers.”
