AMC Entertainment’s AMC Preferred Equity Units, or APEs, made their trading debut on Monday, marking the latest chapter in an eventful journey that took the cinema chain from beleaguered pandemic victim to meme-stock phenomenon.
The APE equity
surged after market open, quickly rising more than 30%, before pulling back to end the session down 13.7% at $6. AMC Entertainment Holdings Inc.
plunged during Monday’s session before pulling back to end the day down 5.5% at $10.46. The S&P 500 index
ended Monday down 2.1%.
AMC’s stock is up 3.9% in premarket trading on Tuesday, while the APE equity is up 10.2%.
With its APE equity unit, AMC created something like a 2-for-1 stock split, marking the company’s latest effort in a fight over stock issuances. AMC is also taking aim at its massive debt burden with the ‘APE’ special dividend. The name is a nod to the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.”
Analysts were largely unfazed by Monday’s volatility.
But, what will the APE equity units mean for AMC’s longer-term prospects?
“AMC’s new APE units are meant to entice the retail trader community to help AMC, who needs cash quickly,” Dan Raju, CEO of cloud-based financial services provider Tradier, told MarketWatch, via email.
Raju pointed to the recent news that rival Cineworld Group PLC is considering bankruptcy protection, as well as AMC’s meme stock fanbase. “This effort is being driven by a unique investor relations strategy and appeal to the Reddit-like crowd to help salvage the struggling theater chain,” he wrote. “Although unique, I do not think this will help AMC, since this type of short-term attention in the company makes it less appealing for long term, fundamental driven investors.”
“AMC is a struggling company, both financially and in its leadership,” added Wes Gottesman, market adviser at live-streaming trading platform TradeZing. In a streaming world, companies like AMC and Cineworld suffer, he added.
“The introduction of AMC preferred share class $APE, is a modern move meant to raise capital, which for a fundamentally strong company could prove successful,” he told MarketWatch, via email. “We are curious to see how this plays out for AMC.”
However, Gottesman is not hopeful that the APE special dividend will move the needle for AMC. “We do not think this will make any significant positive impacts,” he wrote. “In-person movie watching is on the decline.”
With so much recent attention focused on Cineworld’s problems, AMC CEO Adam Aron released a statement last week, noting that AMC ended its most recent fiscal quarter with more than $1 billion of liquidity. The CEO also cited “significant amounts” of cash raised in 2020 and 2021. The APE special dividend should also make AMC a stronger company, he added.
“At AMC, as we have publicly disclosed previously, the film slate in the third quarter of 2022 is expected to be relatively weak,” said Aron. “However, we continue to be quite optimistic about the increasing demand for our portfolio of movie theatres in the fourth quarter of 2022 and calendar year 2023.”
“Theatrical exhibition is on the path to normalization, with quality movies drawing crowds back to theaters regularly,” wrote Wedbush analyst Alicia Reese, in a note released on Tuesday. “That said, the volume of content has not yet returned to pre-pandemic levels, and release slate holes such as the 2H of Q3 are largely driven by production delays over the last year.”
However, AMC has plenty of cash to weather a two-month slump, and is well-positioned for a strong fourth quarter and 2023, according to Reese. “AMC continues to right-size the ship by repaying and restructuring debt, acquiring more quality screens while removing underperforming screens, and making inroads into secondary revenue sources, including alternative content and retail popcorn sales.”
Wedbush lowered its AMC price target to $2 from $4 on Tuesday, citing a higher share count of AMC. “AMC is pre-authorized to issue up to 4.5 billion additional preferred shares of APE to raise cash,” she added. “We expect AMC to wait for APE shares to stabilize with AMC, then issue a portion of its authorized APE shares for cash to pay down the majority of its outstanding debt.”
Additionally, the analyst doesn’t believe that Cineworld’s problems are detrimental for AMC. “Cineworld ran out of cash, while AMC has plenty,” she told MarketWatch on Monday.
While AMC remains a cause célèbre for a vocal community of individual investors, the company and its fellow meme stock phenomenon GameStop Corp. were recently added to New Constructs’ list of “zombie” companies facing severe cash burn.
AMC’s financial health has also been cited as a cause for concern by RapidRatings, a company that assesses the finances of public and private companies.
Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.