Let's All Go to the Movies
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Walt Disney Company (NYSE: DIS) has a major hit on its hands with Marvel Studios' "The Avengers." The movie earned $207.4 million in its first weekend in the US, with global totals of $702.2 million made in just 13 days. The House of Mouse isn't the only one who is celebrating the success of the film, however; Regal Entertainment Group (NYSE: RGC), the largest domestic cinema group showing the movie, reported that the film had topped the company's opening-weekend record by bringing in $42 million in a single weekend.
While the demand for the movie and the glowing reviews surrounding it do account for a significant portion of that total, Regal has been working hard to make sure that people enjoy the film in 2D and 3D at its theaters instead of those of its competitors. A total of 78 Regal locations even hosted events on the Thursday before release that allowed fans to re-watch four of the previous Marvel Studios films back-to-back before "The Avengers" debuted at midnight.
Cinema owners such as Regal and Cinemark Holdings Inc (NYSE: CNK) are certainly glad to see record-breaking turnouts during times of economic hardship since trips to the movies may be cut in favor of renting a movie from one of Coinstar's (NASDAQ: CSTR) Redbox kiosks during a resession. Add in a few years where it seems like original films were much less common than quickly-made sequels and adaptations along with an increased emphasis on 3D films despite a relatively low number of films that are actually filmed in 3D and you've got a recipe for significantly smaller box office earnings and fewer people to hit up the concession stands (which is how movie theaters make most of their money.)
The movie theater business is full of ups and downs, of course. Big movies like "The Avengers" fill the seats during the summer and around the holiday season to make the companies money, while the off-season of the spring and fall tend to drag earnings back down because there are significantly fewer major releases. Regal is off to a good start with its record earnings, however, with its price at the close of trading on Tuesday being less than 40 cents lower than it's 52-week high from last November. The company has also had a strong spring, showing price increases throughout January, February and March which led to a Q1 earnings report that beat expectations.
Both Regal and Cinemark are doing well, and it's a safe bet that both companies will have strong summers with major films such as "The Dark Knight Rises", "Prometheus" and "The Amazing Spider-Man" all but guaranteed to bring in major crowds. Investors looking for a short-term buy may wait until the off season to buy low and ride the stocks to their inevitable peak-season highs to sell, but longer-term investors may also be interested in buying cinema companies. Regal in particular is a good deal at the moment, with shares currently selling for less than the average cost of a single movie admission plus snacks. Before the economy took a downturn Regal was selling for over $22 a share, and a strong summer movie season combined with aggressive marketing promotions on Regal's part could easily carry shares back to the $20+ price point before the end of the summer.
Croaxleigh has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.