Short sellers increased their positions against Cinemark Holdings Inc. in February as the cinema chain reported a wider-than-expected loss for the fourth quarter of 2023 and amid concerns about the box office recovery in 2024.
The movie theater operator ended February as the most-shorted communication services stock traded on major US exchanges with 22.42% short interest, up from 21.72% at the end of January, according to S&P Global Market Intelligence data.
In February, Cinemark reported an attributable net loss of $18.0 million, or 15 cents per share, for the fourth quarter of 2023, narrower than the year-ago net loss of $99.3 million, or 82 cents per share. The fourth-quarter 2023 S&P Capital IQ consensus estimate for GAAP EPS was a loss of 8 cents per share.
Cinemark's revenue increased 6.5% year over year in the fourth quarter to $638.9 million, exceeding the consensus estimate of $617.2 million.
S&P Global Ratings upgraded Cinemark's issuer credit rating to BB- from B+ in late January, citing the company's improved leverage. Ratings analysts anticipate that Cinemark will continue prioritizing debt repayment over shareholder-rewarding activities such as dividend payouts. In a research update, the analysts wrote that they do not expect Cinemark to reinstitute its dividend policy until box office attendance returns to normal in 2025 or later.
Ratings analysts expect a "material disruption" in the theatrical release schedule for 2024 due to production delays resulting from the Hollywood strikes in 2023.
"Cinemark and other movie exhibitors will be directly affected by reduced box office attendance," the analysts said, projecting a 10% decline in domestic box office revenue in 2024. Ratings also cited macroeconomic risks that could limit theatrical revenue growth this year.
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Looking at other stocks, Sphere Entertainment Co. was the second-most-shorted communication services stock in February with 21.43% short interest.
Sphere, known primarily for its giant spherical venue in Las Vegas, swung to an attributable net loss of $173.2 million, or $4.91 per share, in the fiscal quarter ended Dec. 31, 2023, from a year-ago attributable net income of $67.6 million, or $1.95 per share. The consensus estimate was a loss of 41 cents per share for the quarter.
CFRA analysts rated Sphere as a "strong sell" in a March 23 research note, citing concerns over its valuation and growth prospects. Sphere's overall score ranked in the 93rd percentile among all stocks in CFRA's model universe, indicating relative underperformance compared to peers.
Sports-first live TV streaming platform fuboTV Inc. was the third-most-shorted communication services stock in February, with 20.10% short interest. The company in February filed an antitrust lawsuit against Walt Disney Co., Fox Corp. and Warner Bros. Discovery Inc. and their affiliates to block their planned joint venture for a sports streaming platform. Fubo said the proposed venture would harm the company and consumers as it could eliminate competition in the sports-first streaming market.
Overall, short interest in the communication services sector increased to 3.46% at the end of February from 3.28% at the end of January.
Cable and satellite companies were the most-shorted communications stocks in February, with 5.40% short interest, followed by alternative carriers with 5.03%. Interactive home entertainment stocks were the least-shorted during the month.
This report may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this report were not prepared by S&P Global Ratings.