A twist in the tale at struggling cinema chain AMC

Normally, the first week of June would see the summer blockbuster season in full swing, says Lex in the Financial Times. This year however, “the blockbuster is the cinema”. AMC Entertainment Holdings has become the latest “meme stock” –  a stock that suddenly becomes fashionable among individual investors, with word of mouth and social-media hype, rather than fundamentals, underpinning interest. GameStop is the classic recent example. 

AMC’s shares have surged by around 465% in the past month. Distressed debt trader Jason Mudrick bought $230m of stock from the company last week “only to flip it within hours and lock in a profit of perhaps $30m”. Shortly afterwards AMC shares doubled again, “aided by the offer of free popcorn for retail investors”. The group then decided to cash in on the surge by selling more stock. 

Those investors who got ahead of the latest surge may have done well, but AMC’s long-term future seems far from rosy, says Tara Lachapelle on Bloomberg. The company has “more than $5bn in debt and $5bn in operating lease liabilities”. Nor does the end of lockdown “mean new riches for this industry”, at least not in the US. Attendance has been in a “slow and steady decline” for years. And Disney, whose blockbusters are AMC’s “main draws”, is devoting “financial and creative resources” to its own streaming service, Disney+.

An extremely risky investment

Even AMC itself doesn’t believe that its current valuations reflect reality, says Joe Wallace in The Wall Street Journal. At the same time as announcing plans to sell more shares, it warned potential buyers that “that they might lose all their money”, and admitted in a regulatory filing that market prices “reflect market and trading dynamics unrelated to our underlying business”.

It’s true that purchasers could end up making “substantial losses”, says Alistair Osborne in The Times. Still, at least AMC has been “smart enough” to take advantage of the boom, raising $1.25bn from selling more shares at prices it could previously “only have dreamt” of. Given that such equity sales strengthen the company, perhaps other companies, including Cineworld, AMC’s “debt-addicted UK rival” should consider “handing out the popcorn” and trying to tap into the “meme stock” vibe, or at least paying attention to retail investors. 

Interest from retail investors may help assuage doubts about AMC’s survival, but it may ultimately prove to be a double-edged sword, says Sarah Whitten on CNBC: AMC will need to keep investors propping up the company long enough for its “business to stabilise”. Already, its CEO has indicated that instead of using the cash raised to “get its finances back on track or focus on paying down its massive debt”, it will use at least some of the money for “potential acquisitions”, thus “doubling down” on the strategy that got it into trouble in the first place.