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B. Riley analyst Eric Wold, who has stayed generally bullish on the movie theater business despite its recent trials, is now warning investors that the arrival of a “down box office year” has made him “increasingly cautious.”
In a note to clients about his 2024 outlook, Wold wrote that he expects the stock performance of many companies in the sector to remain lackluster given the thinning of the overall release slate. About $1 billion in projected box office revenue has shifted from 2024 to 2025, he estimates, in large part due to the impact of the dual strikes in 2023.
Wold also issued a mea culpa for previously being “too optimistic” about the speed of the expected box office recovery after the SAG-AFTRA strike was settled last fall. Last November, he recalled, “we were willing to shift our valuation buildups to 2025 to capture the projected industry recovery path after an expected hiccup in 2024. We are now reversing course and admitting that we may have been too optimistic and would probably be proven wrong with that view.”
Full-year 2024 box office revenue, which Wold pegged at $8.61 billion last November, could now end up as low as $8 billion to $8.4 billion before rebounding to $9.92 billion in 2025.
This year will have a tough time measuring up to 2023, Wold believes, even in the always-critical fourth quarter. The October-to-December period, which often provides a climactic surge of revenue from holiday moviegoing, could be “relatively weaker” than this year’s strike-hit one. Production schedules and talent windows continue to be in a state of flux, presenting “more downside risk than upside at this point,” Wold wrote. “Also, keep in mind the theatrical mantra that ‘moviegoing begets more moviegoing,’ which could hurt the results for other films remaining on the schedule should the removal of certain films from the calendar keep some groups away from theaters.”
Wold’s note included reductions in estimates in various financial categories across the sector as well as a downgrade of the shares of No. 3 exhibitor Cinemark, from “buy” to “neutral.” His top picks, with “buy” recommendations, are Marcus Corp. and Imax.
Despite waving a yellow flag about 2024, Wold still has a conviction that demand from ticket buyers will ultimately carry the day. It is mainly a matter of that appetite leading to more product returning to theaters. From 2019 to 2023, the number of theatrical releases fell by 41%, the analyst said.
“Even with the strike disruptions throughout 2023 (which included actors unable to promote films that stayed on the 2023 slate), we believe underlying moviegoing demand strength remained evident with
box office for the projected group of top 20 films for the year exceeding our original estimates on a consolidated basis (with some losers and some huge winners),” Wold wrote. “As we move throughout 2024, we believe underlying demand strength for the high-profile films scheduled for this year will be key to keeping investor expectations for the group in check as sights begin to shift toward a 2025 recovery.”