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February 26, 2024

AMC Stock Plummets to All-Time Low as Meme Frenzy Fizzles

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Jan 5, 2024

AMC Entertainment’s stock plunged to an all-time low on Friday, closing at $5.58 per share amidst a broader selloff in meme stocks. The movie theater chain that was once the darling of retail traders now faces an increasingly dire financial situation.

Lead Up to the Crash

AMC surged to meteoric highs in early 2021, fueled by bands of Reddit-connected retail investors who sought to engineer an epic short squeeze. At its peak, AMC’s share price reached nearly $60 – a truly astounding increase from its pandemic low of $1.91.

This massive rise seems a distant memory now. AMC has plunged over 90% from those highs, decimated by a recommendations downgrade from Wells Fargo this week. The meme trade frenzy has all but evaporated.

Several key factors have precipitated AMC’s crash back down to earth:

  • Declining attendance – Theater attendance has failed to recover to pre-pandemic levels
  • Competition from streaming – Services like Netflix keep siphoning moviegoers
  • Rising costs – Everything from labor to concessions is getting pricier
  • Rate hikes – To tame inflation, the Fed is pushing up borrowing rates
Date Share Price Event
Jan 2021 $1.91 Pandemic low
June 2021 $59.26 Peak meme frenzy
Jan 2024 $5.58 New all-time low

This perfect storm has erased over 98% of AMC’s value compared to 2021 highs – a simply staggering, perhaps unprecedented decline.

Impact of the Meme Trade Unwinding

The evaporation of the meme frenzy trade has had an outsized impact on AMC specifically. At the height of the mania, millions of retail traders banded together on Reddit’s WallStreetBets forum and Discord servers.

Coordinating targeted buys of stocks like AMC and GameStop, they sought to engineer an epic short squeeze. And it worked, for a time – share prices detached from business fundamentals and soared to the heavens. Traders gleefully posted screenshots of 1,000%+ gains.

But the party couldn’t last forever. Eventually, the buying power of the meme swarm faded. And fundamentals reasserted themselves with a vengeance – AMC could not justify valuations of $30 or $40 or $60 per share. Not when it was burning $100 million in cash per month and attendance remained deeply depressed.

So AMC plunged, closing below $6 per share for the first time ever. And Wall Street has turned definitively bearish, with Wells Fargo slashing its rating to Sell this January.

What Happens Next? Bankruptcy Looms as Attendance Languishes

AMC’s business was struggling before COVID, and the pandemic has deepened its woes monumentally. U.S. theater attendance peaked in 2002 and has declined nearly 25% since then.

The rise of streaming has played a major role. Viewers have billions of films and shows at their fingertips, able to replicate an increasingly theater-like experience right from their couch. Coupled with rising ticket prices, many consumers simply opt out of going to the movies altogether.

AMC was able to mask these issues with debt prior to 2020. But the pandemic devastated revenues and emptied cash coffers. Now bankruptcy whispers are growing louder.

Some estimates suggest AMC’s cash reserves will be fully depleted by mid-2024 at the current burn rate. And new debt or equity options seem unlikely – the meme frenzy was a once-in-a-lifetime cash infusion event.

Bankruptcy would allow AMC to restructure debts and reject pricey leases. But it would also massively dilute or even wipe out remaining shareholders. It may simply be unavoidable at this point.

The pandemic provided a lifeline, enabling AMC to amass $1.8 billion in liquidity through stock offerings and debt issuances. But that cash is dwindling rapidly. Already this vicious cycle is apparent:

  1. Attendance declines
  2. Cash burn accelerates
  3. Bankruptcy risk increases
  4. Share price falls further

Streaming adoption will likely only grow in the years ahead. Disney+, Netflix, Amazon Prime and others are bolstering their slates with billions in content investments annually.

This perfect storm leaves AMC’s future looking dire. 2023 attendance was likely down over 30% vs. pre-pandemic levels. Simply put, should trends continue, bankruptcy appears inevitable down the road.

The clock is ticking for AMC to right-size itself before cash fully runs out. But its options in today’s landscape look highly limited. Meme traders may refuse to let the dream fully die, but fundamentals eventually dominate. At under $6 per share, bankruptcy likely looms in AMC’s next chapter.

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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