- AMC's new investors are rallying around the stock, but Wall Street is far more bearish on the company's performance.
- While AMC is still losing money, CEO Adam Aron remained upbeat during Thursday's earnings call, thanking millions of Redditors and Robinhood traders who boosted the company's stock earlier this year.
- Wall Street analysts see more challenges ahead for the company, which is burdened by heavy debts, and needs to coax consumers back to its theaters.
To the world, Adam Aron is the CEO of AMC Entertainment, but to millions of the movie theater operator's investors, he's "Silverback."
While AMC is still losing money, Aron was upbeat during Thursday's earnings call, thanking millions of Redditors and Robinhood traders who boosted the company's stock earlier this year.
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AMC said it had 3.2 million individual shareholders as of March 11, who own about 80% of the 450 million shares outstanding. Many of them were inspired by the r/wallstreetbets Reddit page to purchase the stock. The forum selected several companies that were being shorted by large hedge fund groups and decided to take action.
On Jan. 27, AMC's stock exploded overnight, rising to under $20 a share from $5 the previous trading day. The surge allowed AMC to lighten its debt load by around $600 million. The stock currently trades above $9 a share. On Friday, shares were trading up about 6%.
"These individual investors likely own a majority of our shares," Aron said during Thursday's call. "They own AMC. We work for them. I work for them."
While AMC's new investors are rallying around the stock, Wall Street analysts are a bit more bearish when it comes to the company's performance. And while Aron has embraced them, the analysts are fending off harsh comments on Twitter and angry phone calls to their offices.
What Wall Street sees
At present, the average target price from those that cover the industry is $4.44, according to FactSet. Eric Handler, an analyst at MKM Partners, most recently set his price target for the stock at $1.
The target is based on an analysis of the company's capital structure and its significant debt load of more than $5 billion. It also has $450 million in deferred rent payments.
In order for AMC to justify its current stock price, its adjusted EBITDA would need to exceed its all-time high by 16%, Handler wrote in a note to investors. Or be 60% greater than his current estimate for 2022.
As its theaters reopen, revenue is starting to flow again. In the first quarter, AMC posted $148.3 million in revenue, down 84.2% from the same period a year ago. Its net loss shrunk to $567.2 million, or $1.42 per share in the quarter, from a loss of $2.18 billion, or $20.88 per share, a year earlier.
The theater chain has been able to quickly raise capital in recent months, with Aron touting that AMC had ended the first quarter with $1 billion in liquidity, the most it's ever had in its 100-year history. With this cash in hand, AMC says it can stay afloat through 2022.
There is increased optimism from analysts about the movie theater industry, particularly as vaccination rates increase and Covid cases decrease. However, many agree that it could take years for AMC to repay its debt and even longer until it is able to revisit its growth strategy.
And then there is its new pool of investors.
Rise of the Apes
"We expect continued volatility in shares of AMC, as well as trading momentum unrelated to AMC's fundamentals," Wedbush analyst Alicia Reese wrote in a research note a week before AMC posted its earnings. "As such, we do not recommend buying shares of AMC here."
Analysts told CNBC that the meme stock frenzy, even if well-intentioned, showcases a lack of knowledge of how financial markets work. The investing, they say, is based on emotion.
These new investors, many of which only purchased the stock in recent months, call themselves "apes." The name derives from an internet meme based on the movie "Rise of the Planet of the Apes" in which the main character, a chimpanzee named Caesar, communicates the phrase "apes together strong" using American sign language.
The phrase has been adopted by retail investors who are bullish on heavily shorted stocks like GameStop or AMC. The idea being that if the "apes" are united, they can outlast those that are short on the stock.
"Adam [Aron] was very complimentary of the individual retail investors," Handler said, in an interview. "They clearly support him. And put their money where their mouths are ... the stock is where it is right now because of those retail investors."
As a token of appreciation, Aron said that he and AMC would each make a $50,000 donation to the Dian Fossey Gorilla Fund, a conservation fund dedicated to protecting endangered mountain gorillas. This is the first time the company has donated to this organization and it's a clear nod to these new investors.
AMC delayed its annual shareholders meeting more than a month in order to give these investors an opportunity to attend the event and "make their important voices heard," Aron said.
"Just go on Twitter, just go on Reddit, just go on YouTube, read what these people write," he said. "They love AMC. And these are not people who are just going to be investors in AMC. These are going to be customers of AMC who come to our theaters and enjoy watching movies at our theaters as paying guests."
Because of these new investors, Aron said the company will shift how it disseminates information to its shareholders.
"Before when I wanted to talk to the company's ownership, I could fly to Beijing and I could sit down with three or four people and they have 75% of the votes," he said. "It's going to be a little different now ... so you're going to see a lot more outreach to literally millions of investors in our company and it's going to be quite public."
"I've started tweeting again," he said.