Aug 22, 2022 - Economy & Business

Meme stock lifelines show signs of fragility: AMC and Bed Bath & Beyond suddenly plunging

Illustration of the Wall St. bull crying.

Illustration: Shoshana Gordon/Axios

Companies that look like they had a new lease on life courtesy of the meme stock movement are suddenly being forced to ponder their prospects without retail traders backing them up.

Why it matters: The meme stock boom that started in early 2021 has bolstered struggling companies like AMC Entertainment, Bed Bath & Beyond and GameStop, boosting their stocks and giving them hope of a new tomorrow. But being a meme stock darling could be fickle business.

Driving the news: Shares of AMC and Bed Bath plummeted Monday as markets absorbed negative news related to each company.

  • AMC closed down more than 41%, while Bed Bath fell over 16% in a continuation of a sharp downward slide that began last week.
  • With the prospect of raising money from equity markets diminishing, Bed Bath is now reportedly under growing stress to find access to capital from already skeptical credit markets.

State of play: AMC's biggest competitor, Regal parent company Cineworld, confirmed that it could file for bankruptcy after the pandemic hammered movie ticket sales.

  • Meanwhile, new "AMC preferred equity" shares (APE) were issued to existing shareholders Monday in a maneuver designed to bolster interest in the stock that could nonetheless have a dilutive effect on the movie theater chain's shares.
  • "The special dividend seems to be in keeping with CEO Adam Aron’s aggressive marketing efforts to appeal to the retail investors who call themselves 'Apes' and have rallied around AMC over the past year and a half," CNBC reported.

Threat level: Plunging stock prices serve a reminder that nothing's changed about the underlying business model for AMC and Bed Bath, which face their own respective crises.

  • While AMC has benefited from 2022 blockbuster hits like "Top Gun: Maverick," it's still grappling with the effects of the pandemic and facing stiff competition from movie streaming services like Netflix, Disney+ and HBO Max.
  • Bed Bath has been floundering for years, facing declining sales as the retailer struggles to prove why it's still a must-stop shop.

Of note: Even Jaime Rogozinski — founder of the WallStreetBets forum, which has fueled meme stock strategies — told Bloomberg Markets last week that he was surprised to see day traders targeting the same-old stocks.

The bottom line: If meme stock traders move on to something or someone else, companies that previously enjoyed their association with meme mania could be left at the altar grasping for momentum.

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