The AMC 25 theaters in Times Square in New York are seen on Tuesday, July 8, 2014.
Richard Levin | Corbis News | fake images
AMC Entertainment hit a new 52-week low on Wednesday as the movie theater company grapples with a massive debt load, dilution of its shares and a schedule of short blockbuster releases.
Shares of the world’s largest movie theater company have fallen about 80% to below $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 millions of retail investors turning their stock into meme stock. Since then, AMC has come up with various plans to raise more capital to pay off its debts and invest in acquisitions, theater upgrades, a popcorn business, and even a gold mine.
In its latest effort, AMC issued a dividend to all common shareholders in the form of preferred shares called “APEs,” a reference to the nickname “Apes” adopted by meme stock investors. However, analysts say the company was unable to fully capitalize on the sale of these new shares before disillusioned investors withdrew their support.
For now, AMC has enough cash on hand to survive and operate for years to come, said Eric Handler, media and entertainment analyst at MKM Partners. As of June 30, AMC had available liquidity of more than $1.17 billion. Its stock decline, he added, is “purely about capital structure.” Even at its depressed price, the stock is overvalued, according to Handler.
AMC has also struggled to post a profit in recent quarters, and its debt load is $5 billion, about $2 billion more than its market value. The company racked up the debt before the pandemic, when it acquired several smaller theater chains and invested in upgrading its theater seats and screens. While AMC may have delayed its debt payments, “that doesn’t necessarily mean it’s going to be a favorable environment when they have to refinance,” said Wedbush analyst Alicia Reese.
Reese noted that the initial declines in the stock came as management executives sold shares when they were at their peak in mid-2021 and steadily declined in the months that followed. There was another sell-off in August, when AMC announced that it would issue a dividend to all shareholders in the form of APE preferred stock.
“AMC could have capitalized on that, if they had moved very quickly,” he said. “And if they had sold enough shares to pay off their debt balance, they could have. They would have lost all of their retail shareholders pretty quickly, but then they would have been a little more attractive, fundamentally, even though the stock count would have It’s been pretty massive.”
AMC representatives did not immediately respond to CNBC’s request for comment.
The rise of EPAs
In an August letter to shareholders, Chief Executive Adam Aron said APE’s actions would “deeply and fundamentally” strengthen AMC. “Given the flexibility that APEs will give us, we will likely be able to raise money if we need to or so choose, greatly reducing any risk to survival as we continue to make our way through this pandemic toward recovery and transformation.” , wrote.
Then, in late September, the company hired Citigroup as an underwriter to help it sell up to 425 million units of its preferred stock. Reese noted that sale could amount to around $750 million, a “small dent” in the company’s total debt.
“To me, it seems like a missed opportunity,” he said. “And now APE shares are priced so low that it’s not as good to position as it was in mid-August.”
Shares of APE, which began trading in August, fell about 5% on Wednesday, falling to their lowest point yet. The shares have a 52-week high of $10.50, which was reached in late August.
These APE shares were designed as a kind of workaround to help free up AMC to sell additional units of stock as it works to revive its business after the pandemic. The company raised billions during the pandemic by selling new shares, but ran out of shares to sell. Investors, including die-hard AMC fans, feared dilution and rebuffed the company’s efforts to issue additional shares.
Reese noted that before retail investors started buying shares in late 2020 and early 2021, AMC had about 100 million shares outstanding. That number ballooned to 500 million in the next two years.
Now, the combination of AMC’s common stock and its APE preferred stock equals more than one billion shares outstanding.
“They’ve faded into oblivion,” Reese said.
Where have all the blockbusters gone?
Also weighing on investors is a significant lack of blockbuster content during the final months of the year.
There are only four potential blockbuster releases hitting theaters before the end of the year: Warner Bros.“Black Adam (October 21), and from Disney “Black Panther: Wakanda Forever” (November 11), “Strange World” (November 23) and “Avatar: The Way of Water” (December 16).
In 2019, there were nearly two dozen blockbuster movies scheduled to hit the calendar for the last four months of the year, including “Star Wars: The Rise of Skywalker,” which generated $177 million in domestic ticket sales during its opening weekend. week.
The public has returned to theaters after the coronavirus pandemic and is spending more than ever on tickets and popcorn. However, the lack of consistent theatrical releases will weigh heavily on the industry during the final months of the year. AMC should be able to overcome this lack of content due to its significant cash reserve.
“You need your dry powder to protect against any kind of outage,” Handler said. “I think they can limp along for many years with their current balance sheet.”
Hollywood production has ramped up again and the release schedule will improve in 2023 and beyond. The 2023 box office is currently expected to reach about $9.5 billion in total ticket sales, according to estimates by Eric Wold, a senior analyst at B. Riley Securities. For comparison, the 2019 box office hit $11.4 billion.
“I think the outlook is positive for AMC with the potential to return to pre-pandemic box office by 2024,” he said.