Business & Investment

Cineworld stocks have room to deal with

NS Cineworld (LSE: CINE) Stock prices were hit after the world was forced to block by the Covid-19 pandemic. But every cinema is already facing a difficult future, and pandemics are accelerating trends that have already taken root.

Business challenges

Many of us are familiar with the cinematic experience.We got up, paid a little bit more for the ticket, considered buying overpriced popcorn, and then decided to sneak in some sweets from. Tesco Instead. Then we find a seat in the dark and sometimes crowded auditorium, and then somehow get nervous to see the pictures on the huge screen in front of us. I usually forget these little inconveniences and enjoy being sucked into incredible stories. But all I mentioned above represent a significant challenge to the profitability of cinemas around the world.

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The price of popcorn is very high because cinemas have to share one-third of ticket sales with studios.If the studio is big and the movie is the long-awaited “big event”, this cut can be high..

Large studios usually have contracts with cinema chains for how long a particular movie will appear on the big screen. This limits the ability of cinemas to diversify their income with movies from less demanding distributors. It doesn’t matter. These small movies are usually sent directly to a streaming service to completely cut out the theater.

Cineworld is the second largest cinema chain in the world, but that doesn’t mean it’s unaffected by these challenges.

Shares plummeted after the company generated only $ 1.1 billion in revenue in 2017. Shares then traded flat until they plunged again at the start of the pandemic, despite bringing $ 4.1 billion in 2018 and $ 4.4 billion in 2019. Even when we were doing our best in late 2019, Cineworld was operating with a profit margin of only 4%.

The company is more bargaining than an independent cinema. But it’s still being squeezed between big American studios and the changing habits of movie fans.

Pandemic changes

Customers were more likely to be at home than going to the cinema before the pandemic. This is partly due to the high ticket prices mentioned above, but streaming services are deeply involved in movie theater sales. Streaming allows you to watch great movies without leaving the couch. Many TV dramas are of the same or better quality than what is normally available at Cineplex.

One of the most important pandemic decisions was that Warner Bros. chose to release a big slate for big events in both cinemas and streaming services ()HBO Max) at the same time.

It makes a lot of sense for the studio to release an in-house streaming service. Completely eliminate ticket sharing with cinemas and form a new captive customer base that pays monthly subscription fees.

Cineworld may benefit from stagnant demand in the coming months. And with the latest James Bond, we’ve already seen how enthusiastic consumers are in watching movies in the cinema. However, as we saw in 2018, increasing earnings nearly fourfold had a negligible impact on stock prices.


Cineworld faces some serious challenges in the future. I don’t think this means that the cinema will disappear. But I think adding Cineworld shares to the portfolio is a very bad idea.

James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK does not have a position in any of the listed shares. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by exploring different insights, Better investors than us.

Cineworld stocks have room to deal with Cineworld stocks have room to deal with

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