The Cineworld (LSE: CINE) share price recovered well after falling to 14p in October 2020. Its shares increased 55.3% in the last 12 months with prices rebounding to post-pandemic highs of 122p in March 2021.
However, after this recovery, prices have tumbled again. Cineworld shares fell 13.1% in the last six months and 18.4% in the last month. Its shares currently stand at 64p, a far cry from the pre-pandemic highs of 320p in 2019.
Can the Cineworld share price rebound? Here is why I think the cinema chain is in for a rough 24 months.
Streaming over screenings
Despite theatres reopening in May, the impact of the pandemic on big screens across the world cannot be understated. Subscription video on demand (SVOD) services like Netflix, Amazon Prime, Disney+, and Now TV thrived.
Deloitte’s digital media trends report showed that Gen Z prefers games and social media content over traditional TV or movie experiences.
Movies and shows have taken a back seat and only big releases and franchises are capable of generating enormous profits via ticket sales. Even so, most large studios now prefer to release their movies on streaming platforms too.
Most consumers now believe that even big, theatre-only releases will eventually end up on SVODs. Warner Bros recently released a statement that said that all titles will be concurrently released on HBO Max (for one month) along with the theatrical release.
Also, Universal Studios recently signed a deal to shorten the theatrical window. Now, streaming platforms could have access to new releases in 17 days. This means that only franchises with die-hard fanbases can continue to draw people to theatres.
Cineworld will be directly affected by this changing trend. Even though my colleague Royston Wild believes that peoples’ “love of the big screen remains undimmed“, I see a changing trend in media consumption in the next 10 years.
Major overseas movie markets too, are suffering greatly with figures from China and India indicating a growing love for SVOD services. Cineworld, the world’s second-largest cinema chain, will have to work past this. Although large releases will continue to draw in mammoth crowds to theatres, I see no way around the comfort, lower cost, and rewatchability aspect of streaming, which will eat into theatre profits.
Mounting debt
In 2020, Cineworld reported $4.35bn of debt. Despite a tax refund of $200m in 2021, net debt stood at an astounding $6.32bn including a rolling credit facility and debt to secure liquidity. Total liabilities increased by $886.1m and net assets have decreased by $2,711.4m to $226.3m since 31 December 2019.
This is an issue as revenue over the next few years will be affected as debts are paid off. Cineworld’s strategy solely relies upon crowds returning to cinemas in pre-pandemic numbers. In fact, 2019 was the most profitable year for the theatre industry generating $42.5bn.
I believe that this is highly unlikely. The pandemic has changed how we consume media, possibly forever. I predict a difficult rebuilding phase for Cineworld. The release of their annual report in April triggered the fall in share prices, which could continue. Following the changing industry trends, I believe that Cineworld is not a wise investment for my portfolio.
