Debt-Laden AMC Shares Jump 120% After Company Says It’ll Offer Stock Investors Free Popcorn

Debt-Laden AMC Shares Jump 120% After Company Says It’ll Offer Stock Investors Free Popcorn

AMC

Debt-Laden AMC Shares Jump 120% After Company Says It'll Offer Stock Investors Free Popcorn. Image: Unsplash

Share prices for AMC Entertainment, the largest movie theater chain in the world and darling of investors on the Reddit board WallStreetBets, rose more than 120 percent on Wednesday, then tanked on Thursday in a trading frenzy when the company filed to sell 11.5 million shares of its stock.

The stock closed Wednesday at $62.55, up 95 percent for the day, with trading of the shares stopped twice due to volatility. The AMC share price has since fallen back and was trading at $45.73 as of noon Thursday EDT.

Almost a quarter (23 percent) of all US movie theaters have stayed closed since March 2020 due to the coronavirus pandemic. The AMC theater chain survived despite reporting a fourth-quarter 2020 revenue that was down 89 percent from Q4 2019.

AMC Networks had $2.85 billion of debt as of December 2020, down from $3.10 billion a year prior, according to Nasdaq.

The popular WallStreetBets Reddit board is credited with boosting AMC stock as a way to hurt short-sellers who bet against the company, CNN reported. AMC claims to have 3.2 million+ individual retail investors who make up more than 80-percent ownership of the company stock.

“.. what we are seeing is a realignment of the investment landscape .. powered by the ability to coordinate .. through Reddit. Indeed, its dynamics have some similarities to what surprisingly toppled political regimes ..” CNBC News anchor Carl Quintanilla tweeted.

On Wednesday, AMC announced that it would reward new backers with free popcorn as part of an initiative called “AMC Investor Connect.”

“Many of our investors have demonstrated support and confidence in AMC. We intend to communicate often with these investors, and from time to time provide them with special benefits at our theatres,” AMC CEO and President Adam Aron said. “AMC Investor Connect will put our Company in direct communication with a retail investor shareholder base… We start with a free large popcorn on us, when they attend their first movie at an AMC theatre this summer.”

The year 2021 will go down as the “Year of the Retail Investor,” Sean Williams reported for The Motley Fool. “They made their presence known in a big way by rocking the boat in January and February via short squeezes.” The short-squeeze craze started with video-game accessories retailer GameStop, but AMC has “grown into the crown jewel of the retail movement,” Williams wrote.

Retail investors on Reddit and other popular social media chatrooms started banding together in January to buy shares and out-of-the-money call options in stocks with very high levels of short interest. In some cases, they were able to effect a short squeeze, making short-sellers feel “trapped” by a fast-rising share price and run for the exit. Since short-sellers need to buy shares to cover their positions, it accelerates the move higher in a rapidly rising stock, according to Williams.

AMC said it plans to use the money from the stock sale for “general corporate purposes,” which may include paying down existing debt and acquiring theater assets, CNBC reported.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in the SEC filing.

AMC’s stock soaring has nothing to do with a short-squeeze, said Rich Greenfield, co-founder of LightShed Partners, on CNBC’s May 28 episode of “Squawk Box”.

“This is not a short squeeze anymore,” Greenfield said. “This is not big institutions, hedge funds being squeezed. Retail is selling to retail at ever-higher prices so some of them are obviously making tremendous amounts of money as they get more and more people to buy at inflated prices. All that really matters long-term, is this company is never going to make a cash again with the current capital structure.” 

AMC’s share-price gains defy all logic, Greenfield said, and he predicted bankruptcy for the company.

“The debt trades at $.70 on the dollar for a reason,” Greenfield said on May 28. “There’s a good chance this company goes bankrupt. The debt investors know that. The equity investors at least for the moment don’t seem to care.”

Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?