Meme stock investors shake up movie theater business

AMC Theaters CEO Adam Aron is sitting on a gold mine without a shovel or axe. The value of his company’s stock soared during the pandemic because of the unusual habits of a close-knit group of online investors—some of the same people behind the GameStop stock craze earlier this year. Now, those investors own a majority of the company and are disrupting business as usual.

The pandemic hit AMC hard in the spring of 2020, especially since the company already carried large amounts of debt from recent acquisitions. When theaters closed and revenues became nonexistent, AMC, the world’s biggest movie theater chain, burned through $100 million in cash a month.

At various points during 2020, the company was weeks away from running out of money, but Aron managed to cobble together a series of loans to keep the company afloat. Late in the summer, creditors began pushing Aron to file for bankruptcy to ensure they would be at the front of the line to get paid back.

Aron opted for a last-ditch effort to keep the company out of bankruptcy. In August 2020, AMC issued 30 million new shares of stock in what’s called an “at the market” offering. Those sales only raise money if investors buy the shares, but regulators required the struggling AMC to disclose to any potential buyers that the shares could be worthless if the company went into bankruptcy.

The move gave AMC almost $100 million. With the blessing of the Chinese conglomerate the Wanda Group, which controlled AMC, it kept issuing new shares of stock to raise capital. Then, at the end of January, things got crazy.

Individual investors motivated by nostalgia and loyalty to the flagging video game retailer GameStop organized on social media to buy shares of the company and drive up its price. Some of those so-called retail investors started looking for other companies with similar profiles. They set their sights on AMC, and its price quadrupled to $19 in one day. By the beginning of June, the army of retail investors had boosted what had been seen as possibly worthless stock to over $60 a share.

Now, about 4 million retail investors own 80 percent of AMC stock rather than institutional investors like Wanda. It’s an unusual position for a publicly traded corporation to find itself in, and on June 2, AMC acknowledged the strangeness by announcing its Investor Connect program to thank the millions of individuals who helped the company stay out of bankruptcy. The program will offer perks like free popcorn to shareholders.

But those millions of shareholders won’t be bribed with popcorn. When Aron proposed last month that AMC issue more stock to raise capital—something conventional market wisdom would advise in his situation—the retail investors rebelled because they didn’t want to see their shares diluted. Aron went to Twitter to convince them: “Some of you fear dilution, but may be neglecting that equity raising is a powerful tool to strengthen a company and help shareholders. AMC said 5 times in Jan, May and June 2021 that we diluted shares, but as a result raised $2.5 billion. AMC is so much stronger because we did.” Why wouldn’t investors want to own a stronger company?

The “meme stock” crowd, however, was not swayed. For them, the experience of owning high-priced stock in AMC seems to have as much if not more value as realizing monetary gains by selling it. Some of them treat the stock as a collectible, while others take pride in belonging to the group of owners. On web apps such as Reddit and Discord, they boast about never selling the stock and egg each other on to hold it forever. Their behavior baffles industry insiders. Why aren’t individuals acting in their own interest instead of in the interest of the group?

Some of those retail investors might finally be succumbing to the temptation to lock in their profits by selling at the inflated value. In spite of all the posts encouraging each other to stay the course, the price of AMC shares has softened by about 25 percent over the last month.

Even so, Aron seems to take seriously the idea that he works for the shareholders. “It’s no secret I think shareholders should authorize 25 million more AMC shares. But what YOU think is important to us,” he tweeted last week. “So, we’re cancelling the July vote on more shares.” And the offer of free popcorn is still on the table.