How AMC rode the meme stock rally to revitalize its business

After a year of massive stock gains, AMC Entertainment shares are starting to cool off.

The movie theater chain, which narrowly avoided bankruptcy last January, was the beneficiary of a flurry of new retail investors who helped the company secure much-needed capital. These ardent fans led a campaign that bolstered AMC’s shares to an all-time high of $72.62 in June.

Even though shares closed Tuesday at $16.02, AMC is in a better position in 2022 because of the support this new wave of investors and the opportunistic actions of its CEO Adam Aron.

“Of all the meme stocks, AMC seems to be the smartest firm to take advantage and recognize the opportunity there,” said Eric Wold, senior analyst at B. Riley Securities.

As retail investors hoisted the company’s shares to new highs, Aron made strategic stock sales and amassed a $2 billion “war chest” that could be used to invest in theater upgrades and new cinema leases.

“Adam Aron got a huge gift with these retail investors,” said Eric Handler, media and entertainment analyst at MKM Partners. “He could then sell enough stock to give AMC enough cash to survive.”

With more secure footing, AMC can focus on shoring up its balance sheet, reducing its debt load and interest expenses and expanding its content and concession offerings. AMC is facing plenty of challenges. The movie theater industry has yet to fully recover from the ongoing global pandemic. Meanwhile, its new investor base may be fracturing, with some shareholders having unrealistic expectations for AMC’s growth, while others leave it behind.

At the start of 2021, AMC was in desperate need of a cash infusion. Without funds, analysts said, it was likely going to have to file for Chapter 11 bankruptcy protection in order to restructure more than $5 billion in debt it had amassed prior to the pandemic. It was at this time that the company’s stock hit an all-time low of $1.91.

However, on Jan. 25, 2021, AMC was able to raise around $500 million by issuing new common stock and $411 million of incremental debt from upsizing and refinancing its European revolving credit facility. Shares of the company jumped to around $5 a share on this news.

This, coupled with a $100 million shot in the arm in late 2020 from Mudrick Capital Management, meant that “any talk of imminent bankruptcy for AMC is completely off the table,” Aron said at the time.

Two days later, AMC’s stock began its wild ride in earnest. Shares surged 300% to $20 as investors in the Reddit community triggered a short squeeze.