AMC 25 theaters premiered in Times Square in New York on Tuesday, July 8, 2014.
Richard Levine | Corbis News | Getty Images
AMC Entertainment It hit a new 52-week low on Wednesday as the movie and theater company struggled with a massive debt burden, diluting its inventory and a short film release schedule.
Shares of the world’s largest movie theater company are down nearly 80% to less than $6 so far this year, as investors question the company’s capital structure and overall business strategy.
The company came back from the brink of bankruptcy in 2021 thanks to the millions of retail investors who converted its shares into M shares. Since then, AMC has devised several plans to raise more capital to pay off its debts and invest in acquisitions, theater upgrades, and the popcorn business. Even a gold mine.
In its latest effort, AMC has issued a dividend to all common shareholders in the form of preferred stock called “APE,” a reference to the moniker “Apes” adopted by meme stock investors. However, analysts say the company was not able to fully benefit from the sale of these new shares before frustrated investors withdrew their support.
For now, AMC has enough cash to stay and operate for several years to come, said Eric Handler, media and entertainment analyst at MKM Partners. As of June 30, AMC had more than $1.17 billion in available liquidity. He added that the decline in its share “is only related to the capital structure.” Even at its low price, the stock is overvalued, according to Handler.
AMC has also struggled to turn a profit in recent quarters, and its debt load is $5 billion, about $2 billion more than its market value. The company raised debt before the pandemic, when it acquired several smaller theater chains and invested in upgrading theater seats and screens. While AMC may have delayed its debt payments, Wedbush analyst Alicia Reese said, “That doesn’t necessarily mean it’s going to be an enabling environment when they have to refinance.”
Reese noted that the stock’s initial declines came as executives sold shares when they were at their peak in mid-2021 and have declined steadily in the ensuing months. There was another sale in August, when AMC announced that it would issue a dividend to all shareholders in the form of Preferred by APE Stock.
“AMC could have benefited from that, had they moved so quickly,” she said. “And if they had sold enough shares to wipe out their debt stock, they could have done so. They would have lost all of their individual shareholders very quickly, but then they would be more attractive, basically, even though the stock was a pretty huge number.”
AMC representatives did not immediately respond to CNBC’s request for comment.
In a letter sent to shareholders in August, CEO Adam Aaron said APE shares would strengthen AMC “profoundly and deeply.” “Given the flexibility that the APE will give us, it is likely that we will be able to raise funds if we need or choose, which greatly reduces any survival risks as we continue to work our way through this pandemic to recovery and transformation,” he wrote.
Then, in late September, the company hired City Group As an insurance company to help it sell up to 425 million units of its preferred stock. This sale could be about $750 million, Reese noted, a “minor impact” on the company’s total debt.
“To me, it seems like a missed opportunity,” she said. “And now APE’s stock prices are so low that it’s not as good to put them as they saw themselves in mid-August.”
Shares of APE, which began trading in August, fell about 5% on Wednesday, dropping to their lowest level yet. The shares hit a 52-week high of $10.50, which was reached in late August.
These APE shares are designed as a back-up, of sorts, to help free AMC to sell additional units of stock as it works to revive its post-pandemic business. The company raised billions during the pandemic by selling new shares but the shares ran out of stock. Investors, including AMC’s most staunch fan, feared the dilution and dismissed the company’s efforts to issue additional shares.
Reese noted that before retail investors began buying shares in late 2020 and early 2021, AMC had about 100 million shares outstanding. That number swelled to 500 million over the next two years.
Now, the combination of AMC’s common stock and its preferred stock, APE, equals more than 1 billion shares outstanding.
“They have been reduced to oblivion,” Reese said.
The significant lack of trending content over the past few months of the year is also affecting investors.
There is only Four possible versions Coming to theaters before the end of the year: Warner Bros.^ “Black Adam (October 21), Disney “Black Panther: Wakanda Forever” (November 11), “Strange World” (November 23) and “Avatar: Water Road” (December 16)
In 2019, there were nearly two dozen blockbuster-style films on the calendar for the last four months of the year, including Star Wars: The Rise of Skywalker, which grossed $177 million in domestic ticket sales during its opening weekend.
Audiences are back in movie theaters in the wake of the coronavirus pandemic and are spending more than ever on tickets and popcorn. However, the lack of consistent theatrical releases will greatly impact the industry during the final months of the year. AMC should be able to get rid of this lack of content due to its large cash stock.
“You need dry powder to protect against any kind of disruption,” Handler said. “I think they could falter for many years with their current balance sheet.”
Hollywood productions have ramped up back up, and the release calendar will get better in 2023 and beyond. Currently, the 2023 box office is expected to be about $9.5 billion in total ticket sales, according to estimates by Eric Wold, chief analyst at B Riley Securities. For comparison, the 2019 box office was $11.4 billion.
“I think the outlook is positive for AMC with the potential to return to the pre-pandemic box office by 2024,” he said.