Shares of AMC, the movie theater chain, plummeted 14% on Thursday following the announcement of a $350 million stock offering. This year, the company's shares have fallen by a staggering 76%, marking its worst year on record, as reported by Dow Jones Market Data.
The purpose of AMC's stock offerings is to alleviate its mounting debt. However, Wedbush analyst Alicia Reese cautions that with over $4 billion in debt, it may take some time for the company to stabilize its balance sheet. Reese expresses concern that each time AMC announces a capital raising effort, its shares drop significantly.
Reese maintains a Neutral rating and $11 price target on AMC's stock. She warns that diluting the share base too much risks losing support from retail shareholders. However, she notes that once the company is free of debt and industry trends improve, it will likely resume dividend payments and initiate share repurchases using excess cash flow. Reese also states that AMC will focus on issuing shares only when necessary or when share prices are elevated.
AMC has yet to comment on the situation.
On a positive note, AMC reported better-than-expected third-quarter financial results, driven by successful films such as Barbie and Oppenheimer.
Looking ahead, AMC anticipates the impact of recent strikes by writers and actors to be felt in 2024, despite the fact that these strikes have already concluded. The company also highlights strong viewership for Taylor Swift: The Eras Tour and anticipates a successful release of Renaissance: A Film by Beyoncé.
Despite a 16% decline in domestic audience compared to 2019, AMC is generating 30% more revenue per customer through concession sales.
AMC's Path to Recovery in the Post-Pandemic Era
Analyst Mike Hickey from Benchmark acknowledges AMC's promising growth path to recovery in the post-pandemic era. Despite facing significant challenges during the pandemic, including lockdowns and customer apprehensions about COVID-19, AMC managed to stay afloat. To compound matters, the company had accumulated a substantial amount of debt prior to the arrival of the pandemic in the U.S. due to its acquisitions of smaller movie chains and theater upgrades.
In January 2021, meme traders rallied behind AMC, aiming to squeeze institutional short sellers by purchasing the company's shares. As a result, AMC reached its record closing high on June 2, 2021.
CEO Adam Aron has actively supported the meme trade phenomenon, and in August 2022, AMC released approximately 517 million preferred equity units (APEs) for trading on the New York Stock Exchange. This move was intended to alleviate some of the debt burden. The designation "APE" was given as a nod to the retail investors who had invested heavily in AMC stock.
Over time, APE shares were converted into AMC stock, with each APE unit being converted to 1/10 of one share of AMC. This conversion enabled the company to sell more stock and raise funds to pay off its debts.
However, Thursday's market activity revealed that investors are not enthusiastic about share dilution, and AMC's status as a meme trade has hindered it from fully benefiting from positive financial results.
Despite these setbacks, AMC continues its journey towards recovery and growth in the post-pandemic era.
