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AMC Networks: Beyond The Walking Dead
07/07/2017 2:54 am EST
The rising popularity of service-on-demand (SVOD) providers, combined with the ability to view content across multiple devices such as smartphones, tablets and PCs, have resulted in more consumers ditching their higher-cost cable/satellite TV subscriptions over the past several years.
Indeed, concerns over their ability to overcome this major secular shift in viewing behavior is likely why shares of nearly all media companies that derive a meaningful portion of their business from operating TV networks have vastly underperformed since the end of 2013.
Bolstered by the immense and growing popularity of its AMC network show, The Walking Dead — which helped the company continue to successfully negotiate affiliate fee increases and command higher advertising rates — AMCX was able to buck this trend early on.
But such reliance can be a double-edged sword and as ratings for the show began a steady decline towards the end of the 2015 season, what was once the company’s biggest strength quickly became its biggest concern.
With this fueling doubt over AMCX’s ability to grow or even maintain its strong advertising and affiliate rates, its stock went from being among the best performers within its industry to one of the worst, falling roughly 38% from its record close in July 2015.
However, we think investors are vastly overestimating the impact that this fall in ratings is likely to have on AMCX’s overall growth and profitability.
Even with the drop in ratings, The Walking Dead remains the most watched TV program among the key demographic group advertisers prize by a wide margin.
Moreover, with a stable of five TV networks and a successful track record of developing new shows, we think investors are underestimating AMCX’s ability to continue succeeding in the currently evolving TV broadcast market.
Investors also appear to be overlooking two other important factors that have contributed to AMCX’s growth in preceding years — the company’s solid track record of developing original programs and the success enjoyed by its other networks.
The former has helped it overcome similar concerns stemming from the ending of other highly-popular shows in the past, such as Mad Men and Breaking Bad.
For example, in just the past several years, its AMC network has launched a number of other popular shows including Better Call Saul, Into the Badlands, Preacher and the spin-off hit Fear the Walking Dead — all of which have resonated with their core audiences and were renewed for another season.
Combined with the additional payoff from its efforts to further expand its other networks, this should allow the company to continue growing its distribution revenues and enjoy favorable advertising rates even as consumer viewing habits continue to evolve in the coming years.
As this becomes more evident, we think the downward trend in AMCX’s stock will soon reverse. Thus, the stock’s steep slide over the past two years has created an excellent buying opportunity in our view.
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