AMC Entertainment shares climbed as much as 9% on Thursday after CEO Adam Aron said it will not sell in 2021 any of the 500 million shares it’s asked investors to authorize.
The company’s shareholders will vote on May 4 on whether to approve AMC’s request to increase its number of shares outstanding, which Aron plans to deploy in the coming years.
“We hereby pledge at AMC that if the shareholders approve this authorization for 500 million new shares to be issued, we will not use one of those 500 million shares in calendar year 2021. Not one,” CEO Adam Aron said in an interview published Wednesday on a YouTube program called Trey’s Trades, hosted by an independent investor.
The movie-theater operator has been working to recover from the hit the business took from the COVID-19 pandemic. The chain recently started to reopen its theaters after they closed to help reduce the spread of the respiratory disease.
Aron said in the YouTube interview that AMC still has about 43 million shares outstanding that were authorized in 2013. The company could use those shares to raise cash in the short-term if needed but that no decisions have yet been made on that matter, he said.
Asking for authorization to issue 500 million shares is part of the company’s preparation for operations on a longer-term basis, Aron said.
“If you give us the flexibility to use those shares when it makes sense for you, the shareholder, that’s when we’ll use them and not before,” said Aron.
AMC stock has surged from about $2 at the start of this year in part during major short-squeeze rallies that were fueled by retail investors active on Reddit’s Wall Street Bets forum. Shares are up more than 365% year-to-date.
AMC shares fell Thursday after the movie-theater chain’s chief spoke about the company’s plan to issue 500 million shares.
AMC in a March regulatory filing said it wanted to increase the number of shares to total more than 1.02 billion and for shareholders to vote on the matter on May 4.
“We’ll be sensitive to dilution issues, but at the same time there’s an opportunity to bolster our cash reserves and there’s an opportunity to buy back debt at a discount or pay deferred theater rents,” AMC CEO Adam Aron said on CNBC’s “Squawk on the Street” program. “There are a lot of good reasons for shareholders to give us the authority.”
The company is already seeing benefits from the vaccination of millions of Americans from COVID-19 as well as from the release of new movies, Aron said.
Shares of AMC fell by as much as 6.3% to $9.56 before trimmed losses to 5%. The shares, which have grown in popularity among investors on Reddit’s Wall Street Bets forum, have leapt from around $2 each at the start of 2021.
GameStop shares jumped as much as 19% on Wednesday, as retail investors piled into meme stocks once again.
The video-game retailer’s stock price soared as high as $294 – a 550% increase in the space of 11 trading days. A key catalyst for the rally was the news that activist investor and Chewy cofounder Ryan Cohen will spearhead GameStop’s e-commerce transformation.
Several other stocks that are fan favorites on Reddit’s Wall Street Bets forum posted gains on Wednesday. AMC Entertainment shares rose as much as 15%, Express gained 30%, and Koss jumped 65%.
Despite their recent gains, GameStop shares are still down from their peak this year. They skyrocketed more than 2,500% in January, from about $17 at the start of the year to an intraday high of $483 on January 28.
Shares of AMC Entertainment soared 18% on Monday, joining a broader rally as Reddit darlings and reopening favorites bucked the tech sell-off. The stock pared some gains, closing 15% higher for the day.
Airline companies including Delta, Southwest, United, and American, all climbed as well on optimism of an economic recovery thanks to the Senate’s approval of the administration’s $1.9 trillion stimulus plan over the weekend. Disney, meanwhile, hit a record high as California set a date of April 1 for a limited reopening of theme parks in the state.
AMC, a meme stock and another Reddit darling, also rose on news that Wedbush analyst Michael Pachter doubled his price target from $2.50 to $5.00 on optimism of a post-pandemic environment. Pachter did note his concerns about the movie theater chain’s debt burden.
The Wedbush report cited that AMC has been taking the right re-opening precautions, which has allowed it “to drive some attendance over the last several months, while many major markets were closed for several months as the virus continued to spread.”
But it also said that “AMC may take years before it is able to revisit its prior growth strategy as it repays its growing mountain of debt.”
The analyst maintained a neutral rating that has been in place since March 2020.
Since the start of the year, AMC’s stock price has skyrocketed more than 500% driven in large part by a group of retail traders on Reddit’s Wall Street Bets forum targeting stocks shorted by hedge funds.
Shares of AMC Entertainment extend their two-day rally to 36% after New York Governor Andrew Cuomo announced Monday that New York City movie theaters are set for partial reopening on March 5.
Cuomo said theaters are only allowed to operate at 25% capacity, or up to 50 people, per show. The governor also noted that assigned seating, social distancing, and other health precautions would be in place.
“We are excited to announce that AMC, the largest movie theatre exhibitor in New York City, will reopen all 13 of our theatres in New York City beginning March 5,” said Adam Aron, CEO of AMC, in a statement.
Aron noted that since reopening their theaters in August 2020, they have welcomed nearly 10 million moviegoers “without a single reported case of COVID-19 transmission.”
Theaters in New York City have been shut for nearly a year in a bid to curb the spread of the virus. Movie theaters in the state, meanwhile, have been open for some time at limited capacity, as well as in other parts of the country.
The recent move to welcome back moviegoers comes amidst the governor’s effort in repoening certain parts of the state to revive the economy from opening the doors of Barclays Center to Madison Square Garden.
Not everyone, though, is pleased. An employee at Madison Square told Insider that she was shocked by the swiftness of the governor’s announcement and argued that she would need a couple more weeks for her vaccine to fully take effect.
AMC, the world’s biggest movie-theater company, has seen its stock price skyrocket and plummet in the past weeks as Reddit traders targeted the company, along with GameStop, by buying large volumes in an attempt to squeeze hedge funds shorting these.
Apart from that, investors have reallocated their portfolio into so-called reopening sectors from travel to leisure and entertainment since signs of success from various COVID-19 vaccines began to appear.
AMC Entertainment surged as much as 8% on Tuesday as retail investors banding together in online forums returned to the struggling theater chain.
The world’s biggest movie-theater company saw its stock price skyrocket in late January as traders in Reddit groups including r/wallstreetbets piled into highly shorted stocks. Shares soared as high as $20.36 on January 27 before plunging back to earth as the day-trader phenomenon fizzled out.
Tuesday’s price action suggests the crowd of casual investors is still somewhat in it. The gains placed shares at their highest in about a week. Posts on Wall Street Bets hailed AMC as a top recovery play and praised the company’s recent stock sales as a key lifeline. Vaccinations and economic reopening could revive AMC from its virus-induced downturn, Reddit user u/ImFedUpWithItAll said in a post detailing his bullish thesis.
“I’m not Buffett so I’m not buying for life. I’m in this for the rally to normalcy,” they added.
AMC was the most heavily traded company on the New York Stock Exchange before the market opened. Other stocks featured on Wall Street Bets fared worse. Investors looking to lift Palantir saw shares tumble in early trading. GameStop – the group’s favorite stock during the January rally – rose slightly.
The theater chain was among the few companies able to convert extraordinary retail-trader demand into a stronger balance sheet. The company raised more than $300 million last month by selling shares during the Reddit-trader rally. When coupled with a $411 million credit line, the fundraising efforts took bankruptcy talks “completely off the table,” CEO Adam Aron said in a statement.
To be sure, locations in key markets including California and New York remain closed as COVID-19 cases rise across the country. The halt to regular operations endangered the company earlier in the pandemic and forced warnings of extinguished cash reserves.
Daily COVID-19 case counts have since fallen, prompting investors to shift back into so-called reopening sectors including travel, leisure, and entertainment.
AMC closed at $5.59 on Friday, up roughly 158% year-to-date. The company has three “buy” ratings, 10 “hold” ratings, and four “sell” ratings from analysts, with a median price target of $3.99.
Silver Lake Partners, a private-equity firm and, until recently, a major investor in AMC Entertainment, disclosed in a regulatory filing Friday that it has sold all of its equity in the company.
Silver Lake dumped its shares for $713 million on Thursday, turning a roughly $113 million profit on its initial investment, according to the filing.
The move came near the peak of AMC’s share-price surge this week, fueled in large part by Reddit day traders who had targeted short-sellers of AMC, GameStop, and other stocks, who have since lost around $19 billion. AMC shares were up as much as 370% this week.
The surge this week triggered $600 million of Silver Lake’s convertible debt notes, allowing the company to exchange its risky debt for the surging equity. The debt was ultimately swapped into stock at a price of $13.51, according to a regulatory filing on Thursday.
In Friday’s filing, Silver Lake said it had sold its equity at an average stock price of $16.05.
Silver Lake originally scooped up the $600 million in AMC debt in 2018 and pumped an additional $100 million loan into the company as the pandemic ravaged its business, and AMC was still warning that it might have to file for bankruptcy, according to The Wall Street Journal.
But a nearly $1 billion cash infusion on Monday and the Reddit-fueled rally this week have helped AMC avoid that road for now.
You know that financial markets have gotten truly out of hand when people start quoting the Bible. Unfortunately, I’m going to have to do that to start this column.
Proverbs 17:28 notes that “Even fools are thought wise if they keep silent, and discerning if they hold their tongues.” And yet an absolute litany of pundits, market commentators, and social media personalities haven’t followed that advice this week.
GameStop’s short squeeze, explained
GameStop’s stock has been the cause celèbre of our collective madness over the last few days, and it’s understandable why it’s gotten a lot of attention.
The basic story is this: a struggling but well-known company had large bets placed against it in the equity market by short sellers. Investors borrowed shares and sold them, hoping to gain by buying the shares back at a lower price. Unfortunately, the price didn’t drop, because a lot of enthusiastic small traders with high risk tolerance piled into the stock.
This crowd of retail traders learned about the opportunity and loosely coordinated their activities via Reddit’s r/wallstreetbets community, and were empowered by low cost, easy to use trading platforms like Robinhood. Some added call options, hoping that the people they bought the options from would buy the underlying stock to hedge and keep pushing the price up.
With shorts underwater, they had to offload their bets against GameStop’s stock. But of course, that creates a problem: they need to buy shares to get out. The resulting parabolic price action – as shorts bought shares to close their trade while the Reddit-fueled masses continued to pile in – is known as a “short squeeze” and the 1744% year-to-date gain for GameStop is an especially acute version.
Losses were so large for one specific fund that they were forced to sell part of their business to a pair of private investors: Citadel (which operates a securities business that helps facilitate the commission free trading on Robinhood that helped start this whole situation) and Point72, the family office run by Mets owner Steve Cohen.
This all would have been very interesting to stock market nerds. But of course, we can’t just let a story like this be interesting and mechanically unique. Instead, it’s got to become a morality play.
Cui bono sponsionibus?
The idea that a group of message board traders could take down a multi-billion dollar hedge fund led to an instant proliferation of cheering for little guys “Sticking It To The Man.” But of course, there’s a problem with that logic.
The WallStreetBets poster that initially identified GameStop and drove interest in the stock invested $50,000 of his cash in stock and call options, and the position is now worth over $50 million. While that poster is to be commended for such an impressive return, anybody with $50,000 to throw into an extremely high-risk equity market trade doesn’t fit a reasonable definition of “the little guy.”
While WallStreetBets likes to position itself as a bunch of misfits and outcasts, the actual identities of the folks who populate the board (to say nothing of who have benefitted from the GameStop surge) are unknown. What we can say is that the single largest individual holder of GME is Donald Foss, a billionaire pioneer of subprime auto finance. He owns 5% of the company. This is not the little guy you’re looking for.
As for Melvin Capital, the hedge fund that has reportedly lost as much as 70% in its ruinous effort to short GameStop, there should be no tears shed. Business television anchors crying foul that the fund could be run over or the CEO of the NASDAQ calling for regulators to step in are making fools of themselves trying to defend a firm whose professional investors made the bed they are lying in today.
The derivatives are where the real pain is
As bad as some of the first order commentary about GameStop was, things got much worse as prices continued to roar and the spiral of “takes” moved out of stock markets and into the collective cultural narrative.
A marketing professor tried to claim that this was all womens’ fault because the “young men, in a basement, not at work, not having sex, not forming connection, with an RH account, a phone and stimulus…[are] the perfect storm of volatility”. After Discord suspended the WallStreetBets channel on its service for content violations, a columnist declared a crisis of free speech. A former media company president demanded brokers who manage risk by restricting what securities their clients trade be jailed.
This explosion of half-baked and cockamamie takes is incredibly tiresome, and it’s ultimately a reflection of what has happened with GameStop’s stock. What started out as an interesting stock market quirk got turned into a melodrama that sucked in all sorts of people who have no business being involved, and those new entrants immediately mishandled the situation to their or others’ detriment.
Narratives simplify and obscure
There are real lessons to be learned from GameStop. Late arrivals to the party will inevitably learn the hard way that past gains are no indication of future returns, and that large, aggressive bets work both ways. Sophisticated investors have been reminded that being short a stock creates some unique risk management challenges.
But this is a mechanical short squeeze in the stock market. Not class war, an Orwell novel, or an event with broader societal implications. For non-investors, and especially out-of-depth pundits, Proverbs 17:28 is the way to go.