AMC shares plunged today despite record quarterly earnings as the giant theater chain filed with SEC to sell up to $350 million worth of stock — offsetting any bump that could been expected from solid financials and an end to the actors’ strike. Shares were trading up this morning pre-market but reversed course when the filing hit the wire.
The stock of the biggest global exhibitor is off its lows for the day but still down nearly 12% in late morning trade.
More shares out in the market dilutes the holdings of current stockholders, many of them individual retail investors who have repeatedly pushed back on the company issuing new stock. It’s only able to do so now following a ruling by Delaware Chancery Court in convoluted, overlapping suits.
The company swung to profit on a 45% jump in revenue, blowing past Wall Street estimates and outperforming the broader industry. It has cash on hand. But it still faces potential headwinds on its road to full post-Covid recovery led by high debt.
“Significant uncertainty remains for AMC due to its high degree of financial leverage,” said Jim Goss of Barrington Research. “Management has been successful in raising equity that has improved AMC’s potential to move past the pandemic, but risk levels remain high.”
The company has raised $550 million in equity capital year to date.
On a conference call post earnings, CEO Adam Aron stressed as he has many times that the chain’s ability to raise cash as needed [by selling stock] remains critical to its survival.
Traditional Wall Street analysts have agreed with that — differing with some retail investors, who are a big part of its base. “AMC needs to continue paying down its debt, and the most efficient way to do that is to issue shares. Once it has a more manageable debt load” it can transition to repurchasing shares and reinstating its dividend,” said one analyst.
Retail shareholders active on Reddit and other social media platforms saved AMC from Chapter 11 during Covid by piling in and boosting the stock price. Aron knows that and built out features to cater to the group, including a new investor website vertical with perks. He also became active on social and says he responds to every email. He takes questions from retail holders on every earnings call.
On Stocktwits today, some shareholder blasted Aron but others believe short sellers are squeezing the stock, or a government conspiracy. Some supported the move.