AMC Entertainment shot to prominence in 2021 as a ‘meme stock’, with the retail trading community coming together to try and push the price of AMC Entertainment shares upwards. This desire to manipulate the value of AMC Entertainment stocks arose following the revelation that many major hedge funds had sought to short-sell the stock i.e. profit from its likely fall in value.
Despite the retail traders achieving their intended goal, the world’s biggest movie theatre chain saw its share price plunge rapidly in the last 12 months. It’s down over 70% in the year to July 14, 2023. The company’s long-term debt is one of the biggest millstones around AMC’s neck, with over $5.17 billion yet to be repaid. With interest rates on the rise, these debts could soon become all the more expensive too.
AMC Entertainment: The bottom line
From a commercial perspective, AMC was a loss-making concern before the pandemic reared its ugly head. It was unprofitable in 2019 before losing the best part of $4.6 billion in 2020 and a further $1.27 billion the following year. With interest rates likely to play a part in the sustainability of AMC and the stability of its share price, investors will be keeping a keen eye on the economic calendar this week ahead of the US Federal Reserve’s next big meeting to determine whether it needs to continue its rate hike cycle.
Uncertainty surrounding the future of AMC Entertainment reared its head again earlier this summer when Robinhood erroneously notified its clients that AMC had filed for bankruptcy. An incorrect marketing banner was applied to the firm for a three-minute window, incurring the wrath of chair and CEO, Adam Aron.
In fact, just a few days after this unsavoury saga, AMC posted a very encouraging Q1 2023 earnings report. Its revenues reached $954.4 million, some $16 million greater than the estimates of analysts. It also represented a 21.5% year-on-year rise. Perhaps the biggest talking point was AMC’s focus on food and beverages, as it seeks to maximise revenues for the overall cinema experience. Revenue from drinks and snacks sold on-site was up 30% year-on-year. Losses also fell to $235 million.
Why talk of an Amazon takeover was over as quickly as it began
These positive figures underlined just why Amazon was rumoured to be weighing up a bid to acquire the cinema chain in March. Its founder, Jeff Bezos, tasked his investment advisers with exploring the prospects of purchasing AMC. Amazon has been working hard to add some meat to the bones to underpin its Prime Video platform, however analysts at the Wedbush Securities brokerage recommended Bezos not to invest due to AMC’s ongoing debt issues and its “inflated valuation”.
Ironically, Wedbush steered Amazon in the direction of UK-based cinema firm Cineworld Group Plc instead. The firm which filed for bankruptcy protection last September.
Where does this leave AMC? Despite strong quarterly figures, there’s anecdotal evidence suggesting cinemas are struggling to attract the crowds. A combination of poor movie releases and stretched disposable income from the cost-of-living crisis means cinemas are no longer the attraction they used to be.
Nevertheless, AMC’s Aron is working hard to raise additional capital which he believes will be “a crucial component” of the firm’s long-term recovery.
