AMC Movie Theater Stocks Are Blowing Up Thanks to Angry Redditors
Can meme stocks save the theatrical movie business?
AMC, the largest movie theater chain in the world, is caught up in the wildest stock market story of the year. Maybe you've seen headlines, cable news chyrons, or stray Wolf of Wall Street GIFS on social media referencing the rise of GameStop, specifically how traders on Reddit have boosted the value of the company's stock in a battle with hedge funds betting on the failure of the video-game retailer. If you weren't dumping cash into meme stocks, you may have brushed up on The Big Short or tweeted at the co-creator of Billions about why this would make a perfect episode. It's been a bizarre week.
For AMC, the last year has been a struggle. As the pandemic grinds on and theaters in cities like New York remain closed, with would-be blockbusters booted from the schedule or banished to fledging streaming platforms, the company has not found a way to turn back time (Tenet-style) and revive its financial misfortune. Still, the stock surged more than 300% on Wednesday with its shares trading for as high as $20.36 a share.
How did this happen? As the Hollywood Reporter notes, AMC shares were trading at $2.01 only a few weeks ago, and bankruptcy speculation dogged the company all summer as it reeled from the closures caused by the virus and battles with Universal over the theatrical distribution window. Earlier this week, AMC announced it raised almost $1 billion to create a "financial runway" that would provide protection "deep into 2021."
But that's not exactly what drove the surge. AMC's current comeback narrative doesn't have much to do with what investors might consider the fundamentals of the company or its current financial trajectory. After all, we still have no real idea when the movie business will return to normal. So what's going on here? Why is Elon Musk involved? Here's what you need to know.
What does this have to do with GameStop stock?GameStop has been struggling even before the pandemic as customers spend less time going to stores and more time purchasing digital copies of video games via platforms like Steam or their consoles' e-shops. The company's shaky future, combined with an overall downturn in the purchasing of physical media, made it a popular target for hedge funds looking to short its stock. Shorting, a risky but common investment strategy, basically means placing a bet that a stock will eventually go down. If it does go down, you can make a lot of money. If it continues to go up, there's almost no limit to how much you can potentially lose.
The specifics of why Reddit users, particularly the posters of the subreddit r/wallstreetbets, decided to get behind GameStop are complicated. You could spend the rest of the day reading dozens of explainers unpacking the history of the bet, the motivations, and the larger cultural implications. A professor on Twitter yesterday argued it was all about men not having enough sex. (OK, buddy.) On Wednesday, the stock finished up at a stunning 134%.
There's an element of gamer nostalgia at play, along with a heavy dose of "eat the rich" populist anger targeted at the hedge funds shorting the stock, but there was a case made in the early days that GameStop, under the advisement of Chewy.com co-founder Ryan Cohen, could turn around its business by shifting to an e-commerce strategy. At this point, the frenzy, driven by an Elon Musk tweet and rampant media coverage, is the main attraction.
What does any of this have to do with AMC?Anyway, the frenzy is where AMC comes in. Along with Blackberry, Bed, Bath & Beyond, and Nokia, AMC has attracted the interest of the r/wallstreetbets community, which began hailing the company as a potential investment opportunity like GameStop. Traders started loading up on the stock, pushing up the price and sticking it to short sellers in the process. Even the cable company AMC Networks, a completely different stock that trades as "AMCX," got caught up in the chaos as investors likely mistook it for the other AMC and saw its stock surge 12% on Wednesday.
The reaction to all this volatility will likely be swift. On Wednesday, the messaging app Discord banned the wallstreetbets server for allowing "hateful and discriminatory content after repeated warnings." On Thursday, Robinhood, the popular investment app, stopped allowing users to buy or trade the most highly coveted wallstreetbets stocks, including GameStop and AMC. According to press secretary Jen Psaki, the White House is "monitoring the situation."
AMC is not just sitting on its hands, either. On Wednesday, the company announced it raised an additional $304.8 million, and on Thursday, it reduced its debt by $600 million by converting bonds into stock. Even if the company is caught in a meme-vortex, these would appear to be good signs.
Will meme stocks save the movie business?If you are reading Thrillist for savvy investment advice, you have lost your way. Seek help. With that necessary disclosure out of the way, let me make a really mundane observation: This whole situation is obviously strange and unpredictable. The consensus seems to be that the bubble will burst eventually—that's what bubbles tend to do—and the people left holding onto stocks like GameStop and AMC, particularly if they bought them late in the process, will see some heavy losses. Will the Reddit hivemind be able to hold on long enough to stick it to the hedge funds? Again, who knows.
On some level, the fact that AMC got roped into this frenzy does suggest a degree of popular support for the company, perhaps reflective of a larger public desire to see movie theaters survive the pandemic and "return to normal" in a post-vaccine world. Movies dropping on HBO Max and the continued success of Netflix does not have to be an extinction-level event for the major movie theater chains. Presumably, there are people out there who still want to go to the movies—and some of them apparently like to play the stock market.
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