AMC Empire 25 in Times Square is open as New York City theaters reopen on March 5, 2021 for the first time in a year since the coronavirus shutdown.
Angela Weiss | AFP | Getty Images
AMC entertainment took a bold move on Tuesday. The cinema chain has returned to an offensive strategy, betting that its retail investors will stay with the company long enough to offset its pandemic losses.
For months, new fans of the stock who call themselves “monkeys” have been threatening analysts who suggest that AMC stock is overvalued. The apes have stayed bullish on traditionally heavily short stocks and have used their growing numbers to make waves on Wall Street. Some have verbally attacked analysts who warned the debt-laden company could ultimately go bankrupt and render the stock worthless.
Last week, AMC stock rose more than 116% Monday through Friday to close at $ 26.12. The stock is up more than 1,100% since January.
But instead of seeing that strong box office performance on Memorial Day weekend As a signal that it could get its finances back on track or focus on paying off its massive debt, the company said it would double its future investments. With this, AMC’s management is making a risky bet that these small investors will continue to support the company.
The shares of the stock rose on Tuesday after the theater chain sold more than 8 million shares to Mudrick Capital Management. AMC said in a securities filing that it raised $ 230.5 million through the stock sale and will use the funds for potential acquisitions, upgrading its theaters and deleveraging its balance sheet. Mudrick too invested in AMC in December.
Bloomberg reported on Tuesday that the company had sold all of its shares.
Mudrick officials did not immediately respond to CNBC’s request for comment.
“Given our scale, experience, and commitment to innovation and excellence, AMC offers extremely attractive theater acquisition opportunities. For example, we are in discussions with several rental companies of great theaters formerly operated by Arclight Cinemas and Pacific Theaters,” said CEO Adam Aron in the file.
In the pre-Covid era, AMC was heavily focused on growing its presence and modernizing its cinemas to generate revenue. But many would have expected the pandemic to have changed their position. The health crisis closed the cinemas for months. With no money coming in from ticket sales and concessions, AMC fell behind with its rent. It had to rush to raise money just to get through. AMC was on the brink, attracting short sellers who doubted the company would weather the storm.
But it did, in part because of the monkeys that collapsed and drove up the stock price. This enabled Aron to use the interest on the stock to raise funds. Tuesday’s announcement shows that he is not afraid to be opportunistic again.
Other companies in AMC’s position would make debt settlement their top priority for the next year. But instead, Aron turns back to M&A, making the company the largest theater chain in the country. Aron added Carmike, Odeon and Nordic shortly after assuming the role of CEO in 2015.
“Retail investors seem to have an agenda which is to keep AMC alive while keeping them in the hedge funds and hopefully making a lot of money in the process,” said a Wall Street analyst who refused to be named. “They want to democratize the stock market and take power from the rich.”
And so far the strategy is working. Are short sellers It is estimated that AMC lost $ 1.23 billion last week.
The biggest question is: how long can it take? AMC’s bet is that retail investors will stay interested in the stock long enough for business to stabilize.
Wall Street analysts have described these new investors as illiterate and emotional. Since the price surge in January, some have used social media to target anyone who shares negative opinions about AMC. In particular, analysts who have “sell” ratings or consider AMC stock to be overvalued have fended off Twitter attacks and angry phone calls in their offices. These remarks go beyond mere criticism. In some cases, the police were informed of threats. CNBC has reviewed hundreds of messages sent to analysts that contain harassing language and graphic images.
AMC officials did not immediately respond to CNBC’s request for comment.
Rich Greenfield, a partner at LightShed, a technology, media, and telecommunications research firm, has borne the brunt of the anger both publicly on Twitter and Reddit forums, and through private messages, phone calls, and emails.
“I hope you go bankrupt, you selfish little B–” one AMC investor wrote to Greenfield.
“I’ll raise my position tomorrow by $ 10,000 just because I don’t like the face of Rich Greenfield,” wrote another on Reddit last Tuesday.
In another message shared with CNBC, an AMC investor sent Greenfield a photo of a gorilla having sex with another gorilla that had Greenfield’s face photoshoped.
Of course, not all AMC retail investors take part in this promotion. Many have advised against this behavior and urged those who harass analysts to stop. However, the ongoing flood of news has led Greenfield to involve the police and make his account private.
“It’s one thing to disagree and say you’re wrong,” said Greenfield. “It’s a different matter to attack everything about you.”
This news is in response to Greenfield’s March downgrade of AMC, in which it set a 12-month price target of just 1 cent.
“It will never generate money again,” said Greenfield on Friday in CNBC’s “Squawk Box”. “So we have a one-cent price target: This company is on the verge of bankruptcy. The only choice is to issue hundreds of millions of shares.”
On Tuesday, AMC warned investors that issuing more shares in the future is a good option. Every time AMC issues more shares, the value of the current shares is diluted.
CNBC reached out to a number of analysts covering AMC, and many refused to comment, fearing the impact of these retail investors. Some said they have received phone calls, emails, and other messages in response to previous downgrades for the stock.
“I would prefer not to comment on this article,” one wrote in an email to CNBC. “Sorry. I don’t feel like having a war of words with the ‘monkeys’ or doing a mathematical analysis … And it’s not that anyone will change their mind.
The monkeys were encouraged by Aron’s support. On a conference call in May, Aron said, “You own AMC. We work for you. I work for you.“
Aron has tailored his actions to this shareholder base. Aron and AMC are both planning to donate $ 50,000 to the Dian Fossey Gorilla Fund – a clear nod to these new investors.
The company has also postponed its annual shareholders meeting for more than a month to allow these investors to attend the event and “make their important voices heard”.
AMC has also changed its communication style to speak directly to shareholders through social media, including YouTube. Aron has taken a renewed interest in Twitter by “following” hundreds of accounts associated with the “Ape Army”.
In his March note, Greenfield reiterated his confidence in the cinema industry but skepticism about the future of AMC.
“The future of going to the cinema is beyond question,” he wrote. “The future of AMC Theaters is very dubious, however, as the current share price is dramatically overvalued in our opinion, corporate value and over-indebted capital structure.”
Its price target is not far from average, although it is the lowest of the range. On average, according to FactSet, AMC has a price target of $ 5.11. That would be more than 80% Decline from the current level of the share.
Eric Wold, senior analyst at B. Riley Securities, said landlords have proven to be very approachable when it comes to rent, allowing repayments to be deferred for a period of 10 years.
Wold views AMC increasingly positively due to its balance sheet position, new terms with landlords and improved cash flow. For this reason, Wold announced a price target of $ 16 in mid-May.
Wold’s target price of $ 16 was exceeded last Tuesday, prompting him to downgrade the stock from “Buy” to “Neutral”. At the time, Wold was the only buy-rated analyst, according to FactSet.
“Since we only recently got our [price target] from $ 13 to $ 16 each [May 14], we step on the sidelines with the inability to justify it [price target] even higher at this point, “he wrote in a research note to investors on Wednesday.
Even if the domestic box office gains momentum, it could be some time before AMC can reap these revenue advantages. The company has roughly $ 5 billion in debt and has to defer $ 450 million in lease repayments during the pandemic. Much of his debt came from previous acquisitions and investments in upgrading the seating of his theaters, all of which preceded the Covid-related closings.
Although the company ended the first quarter with $ 1 billion in liquidity, the highest liquidity in its 100-year history, that cash will only keep it afloat until 2022 unless audiences return in droves Balance months with no income.
Analysts like Greenfield are skeptical that AMC can return to its pre-pandemic earnings in 2022.
For the first quarter of 2021, AMC posted a loss of $ 294.7 million before interest, taxes, depreciation and amortization and posted revenue of just $ 148.3 million, a decrease of 84.2% from the same period last year.
While the company will see revenue growth as more moviegoers return to theaters, it may not reach 2019 levels in the short or long term.
Because of this, analysts worry that the company’s valuation will continue to rise. On the last day of 2019, AMC was valued at $ 5.8 billion. On Tuesday, that figure was around $ 16.7 billion.
The company’s value-to-EBITDA ratio rose from 7.6 times at the end of 2019 to 25 times, Greenfield announced on Friday.
“This is now one of the most expensive stocks in the media universe,” he said.
AMC noted in its security filing Tuesday that one risk factor for investors is that the stock could be viewed as overvalued.
“Our market capitalization, as implied by various trading prices, is currently reflecting valuations that differ significantly from those prior to the recent volatility and that are significantly higher than our market capitalization immediately prior to the COVID-19 pandemic,” AMC executives said in the SEC filing.
“And to the extent that these valuations reflect trading dynamics unrelated to our financial performance or prospects, buyers of our Class A common stock could suffer significant losses if market prices decline from a return to previous valuations,” the filing stated .
All of this before the company makes any other big bets, such as a takeover – which can be a risky bet even in the best of circumstances.
AMC is looking at you right now Decurions Pacific Theater and ArcLight Cinema chains. Decurion said in April that the two chains’ combined 300 screens would not reopen after they closed during the pandemic.
At the time, the company gave no reasons for its decision to remain closed, but said it had “exhausted all potential options” and had no “workable way forward”.
It’s unclear whether AMC will attempt to buy all of Decurion’s theater locations or just specific venues like the iconic Cinerama Dome in Los Angeles.
When Decurion first announced the closure of these locations, many observers speculated that another film chain would buy up the properties, but didn’t expect AMC to be a top contender.
Still, AMC has previously defied skeptics. It has stayed out of bankruptcy court by raising money and has been able to repay some of its debts thanks to share increases from new investors.
Of course, this investor craze is uncharted territory for the company. Even the success of other companies like GameStop that have been sustained by such small investors is no comparison.
GameStop has been able to revamp its management team and raise funds to invest in modernizing its business and possibly breathing new life into it. It has also been able to reduce its long-term debt, which AMC will continue to struggle with in the future.
This is why most Wall Street pros say the AMC monkeys are taking such a huge risk.
AMC’s new retail investors who 3.2 million, owns approximately 80% of the company’s 450 million shares outstanding as of March 11, AMC reported earlier this month. It is likely that the very investors who helped revitalize AMC will be the ones who hold their pockets, several analysts agreed.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.