AMC embraces long-term relationship with retail traders
The meme stock trade mania of last year has turned into a long-term relationship for AMC.
Why it matters: The movie theater chain now views its new popularity as a mandate to do "exciting things," even if those things draw puzzled looks.
Driving the news: AMC CEO Adam Aron says the company will now take on more “transformational” deals to harness the support of the retail trading block, Reuters reported today.
- His comments come two weeks after AMC announced it would throw $28 million into Hycroft Mining, a struggling gold-and-silver mining company.
- “Our shareholder base has given us capital to deploy with the clear expectation that we are ... going to do exciting things with the money they entrusted to us," Aron told Reuters.
Flashback: In 2021, AMC raised more than $1.2 billion in a single quarter by selling new shares mainly to retail traders (small investors trading with their own money) who fueled a fevered interest in certain stocks as an anti-establishment play.
Between the lines: A kind of loyalty (or codependency, depending on how you look at it) has formed between AMC and these traders who drove its price, valuation and narrative “to the moon.”
- “Aron is going to be forever grateful and cater to that investor base,” Andrew Freedman, media analyst with Hedgeye, tells Axios.
- “It's almost like he's becoming an investment banker, a hedge fund or private equity fund himself [with] his army of [traders] just so willing to do whatever he says.”
Be smart: Retail traders are almost always buyers on a net basis, Nasdaq's chief economist Phil Mackintosh wrote late last year.
The intrigue: As random as AMC’s investment in Hycroft Mining may seem on the surface, there is a connection.
- Mudrick Capital is Hycroft’s largest shareholder, according to Bloomberg. And Mudrick had encouraged AMC to sell new shares last year.
- Hycroft was in need of some additional time to make payments on its debt last month, and Mudrick had enlisted AMC’s CEO to help, Bloomberg reported.
The big picture: It’s pretty well known at this point that AMC’s valuation has nothing to do with its underlying business of selling seats and popcorn at its movie theaters.
- At this point, Aron is almost “forced” to diversify its business to justify its valuation, according to Freedman.