Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
New light shed on Eastman Kodak and AMC Entertainment gives us a valuable lesson. Not all things are as they appear to be. If your stock-trading decisions are exclusively guided by mass popularity you see on the Robinhood app, it may be time to exercise more caution in the future.
Stocks to Sell Now
At the end of last month, we covered a landmark opportunity opening up for Kodak. By entangling itself with the government’s effort to revitalize the domestic pharmaceutical supply chain, Kodak’s value had gone up by 2,189%. Unfortunately, what appeared to be a new direction for Kodak, turned into a familiar pattern of mismanagement.
Likewise, AMC Entertainment may have produced some of your favorite shows, but its business model is highly problematic as it clashes with the new society of remote work, remote entertainment, and social distancing. Read on to see why you should sell these stocks as soon as you can.
As we mentioned in our coverage of the Robinhood-driven frenzy into Kodak stocks, the company has a history of missing out on obvious opportunities. No one can fault it for underperforming as a technological pioneer. After all, Kodak did invent the first digital camera in 1975.
However, technological innovation is only the first step toward success. Business savvy must accompany technical expertise to break through any market.
As Kodak failed to take advantage of the new digital age, it filed for bankruptcy in 2012. Subsequently, it successfully restructured to high-end image printing for large studios.
Not satisfied to remain in this niche, Kodak then embarked on a half-hearted attempt at its own cryptocurrency. Needless to say, we know why people call such coins “sh*tcoins”. The latest, biggest opportunity for Kodak, in the form of the $765 million loan from DFC, was suspended pending the investigation.
The SEC (Securities and Exchange Commission) decided to investigate Kodak for violating insider trading laws in the wake of suspicious trading activity prior to the loan. Moreover, if you were excited about Kodak’s new venture into pharmaceuticals, this was not their first attempt.
In 1988, Kodak bought Sterling-Winthrop Pharmaceuticals for $5.1 billion. It took just 6 years for Kodak to give up and sell the company for $4.61 billion. Therefore, not only not achieving any growth but ending up losing almost $500 million.
The $765 million loan could have been Kodak’s lifeguard, as it bled $111 net loss in Q1 2020, but given its track record and current SEC investigation, it would be best to ditch Kodak and move on to stocks for the long term.
Even if its theaters were to reopen, as AMC plans on August 20th, it is highly unlikely that people would just give up months of social distancing conditioning. It’s even less likely, as we know that most people treat movie theaters as non-solitary experiences.
The entertainment juggernaut, Walt Disney, already sees the writing on the wall, as it will premier its top release, Mulan, to its premium Disney+ streaming service. This marks a $30 price spike compared to an average $9 ticket.
Even so, it is still a safer bet when Disney retains 100% of its earnings on its own platform compared to 60% if released in theaters. As a result of the announcement, Disney stock recovered after previously falling throughout Q1 2020.
People’s reliance on streaming services is nothing new, as you can see from this chart which illustrates the growing number of streaming service users.
The coronavirus pandemic was just an accelerator of the existing trend. Unfortunately for AMC Entertainment, it may have accelerated it too quickly to adapt.
Its Q2 2020 earnings are abysmal, with revenue falling by 99% from $1.5 billion to $18.9 million. AMC’s total net loss for the second quarter was $561 million. This is quite a severe loss as it represents the obliteration of AMC’s entire market cap, all from a single quarter loss.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.