AMC Entertainment (NYSE: AMC) stock is trading sharply lower in US premarket price action today. Other meme stocks including GameStop, Bed Bath & Beyond, & Sundial Growers are also trading lower.
However, with over a 30% drop, AMC is at the forefront of the crash. Several macro factors are contributing to the crash in meme stocks. Firstly, it now seems that markets got too complacent on the Fed’s pivot, or the transition from rate hikes to rate cuts.
Last week, the Fed released the minutes of its July meeting which laid to rest all hopes of a pivot in the near term. Also, this week we have the Fed’s Jackson Hole symposium where it is expected to reaffirm its hawkish stance.
Last week, activist investor Ryan Cohen, who has otherwise been a favorite of meme stock traders, sold the entire stake in Bed Bath & Beyond. Cohen’s RC Ventures was the largest individual stockholder in Bed Bath & Beyond and made a big profit on the trade. RC Ventures is the largest stockholder of GameStop as well, which along with AMC was the torchbearer of the meme stock trade in 2021.
Finally, valuations of some of the meme stocks, which was anyways uncomfortable for Wall Street analysts, started to look even loftier after the crash.
Why is AMC Entertainment Stock Crashing Today?
Along with the subdued macro sentiments, other factors are also hurting AMC stock today. The company has issued over 516 million preferred shares which began trading today under the ticker “APE.” The name is similar to what retail investors who are bullish on AMC like to call themselves.
Last year, retail traders went overboard buying AMC Entertainment shares and triggered a massive short squeeze which led to a sharp rally in the stock. Like most other meme stocks. AMC also capitalized on the surge and raised cash. While some meme companies like GameStop and Sundial Growers raised enough cash to repay all their debt, in AMC’s case the debt was too big.
Also, stockholders thwarted its plans to raise cash by selling more shares. The company has now figured out the preferred shares as a way to raise more cash. The current lot of AMC preferred shares are in the form of dividends and would go to existing investors. However, the company intends to use these for deleveraging in the future.
AMC Issues Preferred Shares, ‘Apes’ Are Happy
It said that it could issue more preferred shares in the future. Adam Aron, AMC’s CEO added, “Given the flexibility that being able to issue more APEs will give us, we believe that we would handily be able to raise money if we so choose, which immensely lessens any survival risk as we continue to work our way through this pandemic to recovery and transformation.”
Cineworld Is Considering Filing for a Bankruptcy
To make things worse, Cineworld, which is the world’s second-largest cinema chain company has confirmed that it is considering filing for bankruptcy. Things have been tough for cinema chain companies. While revenues have rebounded from the pandemic lows, they are still posting losses and burning cash.
AMC, for instance, posted a net loss of $121 million on revenues of $1.16 billion in the second quarter of 2022. While the revenues have rebounded from 2021 and losses have narrowed, the company is not out of the woods yet. It also posted negative operating cash flows of $76.6 million in the second quarter.
Cinema Chains Are Fighting Survival Battle
Also, recently Cineworld warned of low admission rates until November 2022. AMC also admitted that the third quarter would be weak. It added, “However, we continue to be quite optimistic about the increasing demand for our portfolio of movie theatres in the fourth quarter of 2022 and calendar year 2023.”
The company also sounded optimistic about its liquidity, considering the nearly $1 billion cash on its balance sheet. However, it is still saddled with a lot of debt which at some point it might need to restructure, including through swapping with preferred equity.
All said, for now, the meme stock trade seems to be unwinding the same way it did in 2021.
- After One Medical, Amazon Sets Its Eyes on Signify Health
- Best Stocks to Buy Now on Reddit – Most Recommended Reddit Stocks
- Best Beginner Crypto to Invest
Tamadoge - The Play to Earn Dogecoin
- '10x - 50x Potential' - CNBC Report
- Deflationary, Low Supply - 2 Billion
- Listed on Bybit, OKX, Bitmart, LBank, MEXC, Uniswap
- Move to Earn, Metaverse Integration on Roadmap
- NFT Doge Pets - Potential for Mass Adoption