The Wall Street analyst known as Movie Theater Bull is becoming “increasingly cautious about stock performance in a year of declining box office.”

B. Riley analyst Eric Wold, who remains optimistic about the film sector in general despite the recent lawsuits, now warns investors that the upcoming “year of poor box office results” has made him “increasingly cautious.”

In a note to clients on its 2024 outlook, Wold wrote that he expects the stock performance of many companies in the sector to remain weak given the thinning of the overall release slate. He estimates that projected box office revenue from 2024 to 2025 has fallen by about $1 billion, largely due to the impact of the double strikes in 2023.

Wold also gave one Mea culpa after the SAG-AFTRA strike was resolved last fall, he was previously “too optimistic” about the speed of the expected box office recovery. Last November, he recalled: “We were prepared to postpone our valuation construction to 2025 to capture the expected recovery trend for the sector after an expected slump in 2024.” We are now changing course and admitting that we may have been too optimistic if and would probably prove us wrong with that view.”

Full-year 2024 box office revenue, which Wold estimated last November at $8.61 billion, could now end at a low of $8 billion to $8.4 billion before recovering to $9.92 billion in 2025.

This year will be difficult until 2023, says Wold, even in the always crucial fourth quarter. The October-December period, when Christmas movie revenues often peak, could be “relatively weaker” than this year’s strike. Production schedules and talent windows remain fluid, which “represents greater downside risk than upside risk at this point,” Wold wrote. “Also remember the theater mantra that ‘cinema begets more cinema’, which may harm the results of other films remaining in the schedule if the removal of certain films from the calendar results in some groups not coming to the cinema.

Wold’s comments included estimate cuts in several industry financial categories, as well as a downgrade of shares in third-largest issuer Cinemark to “neutral” from “buy.” His top Buy picks are Marcus Corp. and Imax.

Despite the yellow flag being waved around 2024, Wold still believes the demand from ticket buyers will ultimately decide. It is this appetite, more than anything else, that drives more product back to theaters. From 2019 to 2023, the number of theatrical releases fell by 41%, the analyst said.

“Even with the strike disruption in 2023 (which left actors unable to still promote films on the 2023 slate), we believe the underlying demand for films remained clear.”
“Detached returns for the projected group of top 20 films of the year exceeded our initial estimates on a consolidated basis (with some losers and some big winners),” Wold wrote. “As we enter 2024, we believe underlying demand for the high-profile films planned this year will be key to driving investor expectations for the group as the outlook for recovery begins to shift through 2025.”