AMC Networks (AMCX)

Television broadcasting and production company AMC Networks (NASDAQ:AMCX) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 6.9% year on year to $555.2 million. Its non-GAAP profit of $0.52 per share was 35.5% below analysts’ consensus estimates.

Company Overview

Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ:AMCX) is a broadcaster producing a diverse range of television shows and movies.

Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.

Competitors in the television and media production industry include Lions Gate Entertainment (NYSE:LGF.A), Paramount Global (NASDAQ:PARA), and Warner Bros. Discovery (NASDAQ:WBD).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, AMC Networks’s demand was weak and its revenue declined by 4.6% per year. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. AMC Networks’s recent performance shows its demand remained suppressed as its revenue has declined by 12.4% annually over the last two years.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Affiliate and Advertising, which are 28.1% and 21.4% of revenue. Over the last two years, AMC Networks’s Affiliate revenue (retransmission and licensing fees) averaged 13.2% year-on-year declines while its Advertising revenue (marketing services) averaged 14.9% declines.

This quarter, AMC Networks missed Wall Street’s estimates and reported a rather uninspiring 6.9% year-on-year revenue decline, generating $555.2 million of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 3.8% over the next 12 months. Although this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.

AMC Networks’s operating margin has been trending down over the last 12 months and averaged 4.8% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

In Q1, AMC Networks generated an operating profit margin of 11.6%, down 6.9 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for AMC Networks, its EPS declined by 15.3% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, AMC Networks reported EPS at $0.52, down from $1.16 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects AMC Networks’s full-year EPS of $3.54 to shrink by 13.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

AMC Networks has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.8% over the last two years, better than the broader consumer discretionary sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

AMC Networks’s free cash flow clocked in at $94.19 million in Q1, equivalent to a 17% margin. The company’s cash profitability regressed as it was 7.2 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

Over the next year, analysts predict AMC Networks’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 11.8% for the last 12 months will decrease to 9.5%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

AMC Networks historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.2%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, AMC Networks’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

AMC Networks reported $870.2 million of cash and $2.37 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $503.3 million of EBITDA over the last 12 months, we view AMC Networks’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $70.45 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $6.19 immediately after reporting.

Updated: May 16, 2025 at 10:53 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

AMC Networks doesn’t pass our quality test. For starters, its revenue has declined over the last five years, and analysts don’t see anything changing over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its projected EPS for the next year is lacking.

AMC Networks’s P/E ratio based on the next 12 months is 2.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $6.50 on the company (compared to the current share price of $6.16).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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