AMC Stock Jumps Despite Weak Earnings

CEO Sapan touts long life for ‘Dead’ profits
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AMC Networks’ stock jumped Wednesday despite an earnings report that seemed to disappoint most Wall Street analysts.

AMC reported flat revenues and an 11% decline in net income, with a 10% drop in domestic advertising revenue. Nevertheless, AMC’s stock was up nearly 4% in afternoon trading.

AMC’s ratings and ad revenues are dominated by The Walking Dead, whose ratings had been sliding, and its spinoff Fear The Walking Dead, whose viewership dropped sharply in season 2.

Todd Juenger of Sanford C. Bernstein added that AMC expected a relatively flat quarter and got a double digit drop. He noted that The Walking Dead returned to higher ratings, “Giving hope to Bulls who would argue Q3 was an aberration and Q4 will tell a much different advertising story (maybe estimates should even go up),” he said. “Even bulls will have to admit, though, that 2017 and beyond—already hard to predict—just got riskier given audience trends at Fear The Walking Dead and its impact on advertising revealed this quarter.”

Analyst Michael Nathanson of MoffettNathanson Research called AMC’s results “a big miss” on ad sales. “This highlights our recent call on downgrading pure play cable networks,” he added.

“While we would expect the company to talk about a rebound in trends in 4Q, thanks to the strong return of The Walking Dead, we are weary of further risk to earnings next year and beyond,” Nathanson said.

Indeed on the call, AMC CEO Josh Sapan called out the ratings for the new season of TheWalking Dead, which kicked off late last month.

Sapan noted that the premiere drew more than 20 million viewers, with 17 million watching live.

“To deliver at this level in the show’s seventh season in terms of audience size, cultural relevance and what we think is creative excellence, we believe speaks to the enduring quality of the franchise,” Sapan said.

“Since we own the IP, we’re able to monetize this asset in various windows,” he added. "While linear advertising represents one revenue stream we also derive a significant amount of revenue from other platforms, such as international, subscription video on demand and home video and various forms of licensing and merchandising.”

“The stability and predictability of these revenue streams gives us confidence in our ability to effectively manage the overall profitability of the show now, and we believe quite well into the foreseeable future,” Sapan said.

AMC CFO Sean Sullivan added that the numbers should also look better in the fourth quarter.

"Despite the absence of some notable programming, namely Into the Badlands on AMC and Dr. Who on BBC America, we expect our [advertising] results to improve and anticipate growth in the fourth quarter on a year over year basis,” Sullivan said.

“With respect to distribution in the fourth quarter, we expect to deliver double digit year over year growth. We expect non affiliate revenue streams to be a more significant driver of this growth, both on a percentage and absolute basis,” he said.

“We feel good about how the business is positioned and are confident in our ability to grow top line revenue, adjusted operating income and EPS while generating healthy levels of free cash flow,” he said.

Also posting a big gain was 21st Century Fox, which was up nearly 7%. The company reported strong earnings growth after the market closed Tuesday.

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