Jun 7, 2021 - Economy

How AMC is different

Illustration of a stock trend line on a movie theater screen

Illustration: Annelise Capossela/Axios

AMC has learned its lesson from the meme winter, and is determined to use the meme summer to its advantage. That's the lesson from last week's wild action in AMC stock, much of which was orchestrated by the company itself.

Why it matters: There's a case to be made that AMC only managed to avoid bankruptcy by getting caught up in the meme-stock craze of January, when its share price first became divorced from fundamentals.

  • The company might not be able to make money by selling movie tickets, but it's proving itself a master of bringing in money by selling share certificates.

How it works: AMC has steadily issued new stock, most recently on Thursday, when it sold more than 11 million shares in less than three hours, netting $587.4 million — more than the entire company's equity value at the beginning of the year.

  • By the numbers: The total number of AMC Class A shares outstanding has risen tenfold from 50 million this time last year, to 500 million today. As a result, the company's market capitalization has risen even faster than its stratospheric share price.

The big picture: When GameStop first started heading to the moon, the overwhelming consensus was that the stock had become a pure gambling vehicle that was inevitably going to crash, creating massive losses for people who bought into the hype.

  • Those losses didn't happen: GameStop stock continues to trade at extremely elevated levels, raising the prospect that meme stocks can actually be (very risky) investments, rather than just short-term trades.
  • Once meme stocks become a potential investment, companies can take advantage of that fact by issuing new shares on the capital market — just as other risky companies like Tesla have done in the past.

The difference between Tesla and AMC is that AMC isn't a technology stock with the potential to dominate the world. It's just a chain of movie theaters, struggling in the face of a long-term secular decline in Americans' desire to see any but the very biggest movies outside the home.

  • Short-sellers beware: The similarity between the the two companies is that both have large and enthusiastic retail investor bases. AMC, just like Tesla before it, is proof that once retail investors dominate a stock, its trajectory is unlikely to behave in a familiar manner.

Reality check: Bank of America will stop covering GameStop, and plans to suspend its rating of Bed Bath & Beyond, saying the shares no longer trade on fundamentals.

The bottom line: Capital markets are playing by new rules, and regulators are understandably loathe to get involved, even if there are risks to the public's broad faith in efficient markets.

  • Hertz stock, for instance, is now trading — on fundamentals! — at higher levels than it was last year while going through bankruptcy. The SEC prevented a stock sale back then, in a move that now looks as though it was preventing a trade that would have been beneficial for both the company and its investors.
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