AMC Networks Earnings: Strong Free Cash Flow Overshadows Ongoing Linear TV Struggles

AMC AMCX posted a mixed second quarter as revenue was below and adjusted EBITDA came in ahead of FactSet consensus. Cost management drove the EBITDA beat, particularly at the corporate level, but struggles in domestic pay TV persisted because of the soft advertising market and the ongoing secular decline in subscribers. We think AMC lacks the financial resources required to operate as a streaming-first business and that the Dolan family should consider a sale or merger in the near to medium future. We maintain our $27 fair value estimate.

Revenue dropped 8% versus a year ago, with streaming growth and a one-time bump in licensing revenue more than offsetting the weak core traditional television business in the United States and abroad. AMC reported that it had 11.0 million total streaming customers across its various services at quarter-end, down from 11.5 million at the end of the first quarter. Management continues to blame the decline on its shift to a focus on more-valuable customers and on holiday promotions rolling off. Streaming revenue growth decelerated again to 13% year over year versus 29% last quarter and from 41% in the fourth quarter. Streaming revenue of $137 million accounted for about 20% of total sales during the quarter, in line with the first quarter.

U.S. affiliate revenue declined 13% because of the continued loss of traditional television customers, aggravated by the decision to pull its networks off Fubo at the end of 2022. Affiliate revenue per customer increased versus a year ago, indicating that total subscribers to AMC’s suite of cable channels has declined faster than 12%. U.S. ad revenue declined 17%, reflecting smaller audiences and the broader weakness in the ad market. Licensing revenue increased 12% to $81 million in part because of ending the Hulu deal and pulling forward revenue. Outside the U.S., revenue collapsed by 21% because of a 6% decline in ad sales and a 54% drop in licensing from weaker demand and lower production volume.