Currently, the value of AMC’s stock is more than double the entire movie theater industry’s 2019 domestic box office ticket sales. A rebounding economy and a horde of organized investors have sent the company’s market cap to the moon but delineating myths on the moon from facts on the ground isn’t easy. Thousands of retailers and other businesses who rely on movie theaters as anchors to bring in reliable store traffic are left scratching their heads, wondering if the future of cinemas on Main Street is as bright as AMC’s is on Wall Street.
When we last looked at AMC, it was clear the business prospects of America’s largest movie theater chain were dim. Caught in a flurry of memes coming from retail investors based on Reddit, AMC was being talked about alongside dying brands like GameStop, Nokia, and Blackberry. The others have slowed significantly, but AMCs wild ride is picking up speed. With investors still pumping up the stock, the price per share has soared more than 2,900 percent this year. Other meme stocks were left out in the cold from Wall Street’s feeding frenzy, but AMC is cashing in.
The company announced Monday that Mudrick Capital was buying $250 million in shares, resulting in a stock price surge which Mudrick immediately capitalized on, flipping the shares the very same day. In doing so they called the shares ‘overvalued,’ driving the stock down by more than 30 percent. In a rational world that may have been the end of it, but on Wednesday, retail investors were back at it, spiking AMC’s stock price by more than 100 percent. Thursday AMC announced it sold 11.55 million shares at $50.85, nearly double the price paid by Mudrick, earning the struggling movie theater chain $587.4 million in additional capital. In a single quarter, AMC has raised $1.24 billion. That’s on top of nearly $1 billion worth of equity and debt issued in January to prevent impending bankruptcy, which is itself on top of nearly $1 billion raised during 2020. On the brink of bankruptcy for months, AMC’s stock is now up over 2,000 percent, the company is worth (at the time of writing), $23 billion, and the company coffers are full of cash.
Despite AMC’s rapid reversal of fortune, nothing has fundamentally changed about the business. The movie chain still has more than $5 billion in debt with an additional $5 billion in lease liabilities across its nearly 1,000 locations. When CEO Adam Aron took over in 2016, the company started taking on debt to finance an aggressive growth strategy. As capital expenditures and debt piled up, AMCs price slid, putting the company in a precarious position. Then a global pandemic hit. Bankruptcy rumors started immediately. A year later, the only thing that’s changed is the company’s stock price. That’s something even AMC understands, issuing a stern warning in its latest prospectus:
“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. Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
Excerpt from a statement maid by AMC
An admission that current market prices do not reflect underlying business or industry fundamentals is worrying language. An army of Reddit-dwelling retail investors can’t change the profitability of a business model. Other movie theater stocks like Imax and Cinemark are falling. Movie theater visits are plummeting for all age groups, but especially in crucial younger demographics, according to data from the Motion Picture Association. Ticket prices continue to rise, now averaging $10 for a single ticket. A $10 subscription fee per month earns you access to HBO’s entire catalog. While attendance dries up, streaming services continue to increase user bases. The theatrical release window is now shorter than 3 months, soon it could be just 45 days, giving cinemas less time to profit off hit films. Many streaming services are working deals directly with studios for simultaneous release.
Memorial Day Weekend has likely played some part in this week’s insane calculus. Approximately 72 percent of theaters were open last weekend to an American public that is being rapidly vaccinated and coming out of lockdown. Over the four-day weekend, American cinemas raked in nearly $100 million in ticket sales thanks to films like The Quiet Place 2 and Cruella. Now that theaters are open, this year studios expect big numbers from films like F9, Dune, and No Time To Die, among others.
“Any studio executive’s belief that a movie belongs on streaming, that model is shattered with the numbers [from this weekend],” Joseph Masher, chief operating officer of Bow Tie Cinemas, said Tuesday on CNBC’s Worldwide Exchange. “The profitability of [movies] is exclusive to the theater. We’ve proved it this weekend.”
Clearly, the movie theater industry isn’t doomed, one stock is just massively overvalued. Box office revenues have been slowly sliding, hitting $11.4 billion total in 2019. Now one movie theater chain is worth more than twice as much as that. If the industry was truly set for a comeback, other movie chain stocks would be surging. They’re not. While AMC’s stock was skyrocketing, Goldman Sachs analysts were downgrading Imax and Cinemark stock to sell. The prevailing sentiment among Wall Street analysts seems to be in line with AMC’s own opinion of itself: pain is likely. The industry will struggle to maintain its size, closures are coming sooner or later, even for AMC. How many closures are still a mystery, but the industry remains in a downwards trajectory, it’s simply a matter of speed of descent and where things will eventually land.
We can no longer say AMC’s moment of Wall Steet mania was a flash in the pan. It was a $1.2 billion grease fire, one that is taking attention away from troubles elsewhere in the kitchen. Company leaders should be commended for capitalizing on retail investors where other meme stocks have not. AMC has taken a red herring and turned it into a tool for survival, perhaps even prosperity. If any part of your business relies on AMC as an anchor, this week’s news will come as a welcome surprise. Other cinemas and the businesses around them won’t get as lucky. It’s time to stop thinking about being near a cinema and start thinking about which cinemas will still be open.