It’s not a shock (to this Fool at least) to see Cineworld Group’s (LSE: CINE) share price plummeting again. The cinema chain lost 70% of its value in 2020 as the Covid-19 crisis closed its cinemas and forced film delays. A steep rise in coronavirus cases in recent weeks have revived fears that Cineworld could be pushed over the edge.
Is Cineworld’s share price about to go all the way to 0p? Or should long-term investors like me use this recent weakness as a shrewd buying opportunity?
Streaming threats
Admittedly, I sold my holdings in Cineworld late last year. It wasn’t just the mass shuttering of its cinemas last year that gave me the heebie jeebies. My concerns over the long-term threat posed by streaming services increased as subscriptions to such services jumped during the pandemic.
I worried that Netflix, Amazon and Disney’s services beamed directly into the home could pose a terminal threat to the allure of the big screen. But robust box office sales since screens have reopened suggest that the magic of the cinema is as strong as ever.
The spectacular success of James Bond’s latest outing No Time To Die isn’t a standalone success. Cinema admissions across all the major chains have jumped since Covid-19 restrictions started to be rolled back in the spring.
But Cineworld and its peers can’t afford to be complacent. Changes to the way studios distribute their movies that favour the streamers poses a massive threat to cinema chains. What’s more, the likes of Netflix are doubling-down on creating exclusive content to keep viewers glued to their TV sets. Hits such as Tiger King, Bridgerton and, more recently, Squid Game illustrate the might that the streamers have in setting the cultural zeitgeist.
Cineworld’s share price is still in danger
But my biggest fear for Cineworld is whether its colossal debt pile will pull it under if cinemas are forced to close again.
Cineworld’s share price recovered strongly in late 2020 and early 2021 as the business issued new shares and obtained fresh financial support from lenders. This could ultimately prove to be no more than a temporary sticking plaster should Covid-19 rates continue to climb and theatres are shut down again.
UK health secretary Sajid Javid has warned that new coronavirus infections on these shores could hit 100,000 a day. Encouragingly, cases are falling in Cineworld’s core US market, though the recent discovery of a new Delta variant in the States in recent days — the mutation that’s significantly worsened the public health crisis in the UK and Europe — could put the recovery in jeopardy.
Cineworld had a whopping $8.4bn worth of net debt on its books as of June. How the business will be able to get this down if its screens are closed, and/or if fresh social distancing measures reduce capacity levels in its theatres, is anyone’s guess.
The dangers to Cineworld’s share price in the near term and beyond remain huge. I wouldn’t be shocked to see it go all the way to 0p. So I won’t be using recent weakness as an opportunity to go dip-buying.