Although retail investors have been profiting from the stock market for over a century, they have rocked the boat in 2021 like never before.
Starting in January, investors in Reddit’s community discussion forums began to band together to buy stocks and stock options with very high short-term interest levels. These investors simultaneously aimed to exert brief pressure and punish “lawsuits” – that is, institutional investors who mostly bet against the companies in which they stacked up.
Of all the Reddit stocks and even that retail investors have bought, none have elicited more emotion (or should I say cult?) Than The Movie Channel. AMC Entertainment (NYSE: AMC).
Browse the social media discussion boards and you will find a consistent message: a short squeeze is imminent. AMC message boards are filled with data on short interest, days to cover, supposed synthetic stocks and dark pools, and more. But this data all have one thing in common – it tells you absolutely nothing about AMC or how the business / industry is doing.
Here are seven facts about AMC that retail investors conveniently seem to ignore or ignore.
U.S. movie ticket sales have been down for 19 years
As the vaccination campaign picks up speed in developed countries, retail investors are excited to see moviegoers returning to theaters. They also have the recent success of Godzilla vs. Kong bow down. But panic a little and you will find that the movie industry has been in decline for almost two decades.
According to The-Numbers.com, a website devoted entirely to analyzing trends in domestic theaters since 1995, the number of domestic box office tickets sold has grown from a high of 1575,756,527 in 2002 to 1228,763,382 in 2019, the last full year before the pandemic does hit the US market. Additionally, inflation-adjusted box office sales fell from $ 14.43 billion to $ 11.26 billion during the same period. Both represent declines of 22%.
The data is pretty clear: as new streaming and rental options have developed, fewer and fewer people are heading to the cinema. This is not good for AMC or any of its peers.
2.AMC recorded negative free cash flow of $ 324.8 million in the first quarter
AMC CEO Adam Aron made a point of touting the company’s liquidity in his latest quarterly report. AMC finished with a hair of more than $ 1 billion in cash on hand, marking its highest level in company history. But as I said before, there is a big difference between record high liquidity and plentiful liquidity.
As reported in AMC’s first quarter income statement, its free cash flow was negative $ 324.8 million, which was actually worse than the previous year by over $ 49 million. Yes, the company raised $ 428 million with a recent market offering of 43 million shares, but this capital increase only makes up for a few months of AMC’s absurd cash consumption.
Based only on Wall Street’s projected loss per share estimates over the next seven quarters (i.e. through Dec.31, 2022), AMC is expected to lose between $ 1 billion and $ 1.2 billion, this which would absorb most of its remaining cash.
3. Its net interest expense more than doubled in the first quarter
You will never see debt discussions on AMC message boards because the corporate debt load is overwhelming for the bulls thesis.
To avoid bankruptcy during the pandemic, AMC was forced to issue stocks and sell debt like mad to raise capital. Much of this newly issued debt carries interest rates ranging from 10% to 12%, with a $ 100 million tranche that could go up to 17% on a variable basis. As a result, AMC spent $ 151.5 million in interest in the first quarter on its corporate loans of more than $ 5.4 billion. That $ 151.5 million is more than double the $ 71.3 million it spent to service its corporate debt in the quarter of last year.
If we include all other interest expense, such as finance lease obligations and exhibitor service agreements with National Cinemedia, AMC spent a total of $ 162.8 million on debt service on the first floor. trimester. That’s $ 651.2 million on an annual basis, and that’s more money than the company has ever generated from its operations in any given year.
4. Company rents are significantly higher
Retail investors have also ignored AMC’s very big time bomb: its deferred rent problem.
During the pandemic, AMC received concessions from landlords to defer rent. As of March 31, deferred lease obligations for 2021 and beyond totaled $ 473 million. To get right to the point, AMC will need additional concessions from its owners and for its cinemas to return to pre-coronavirus levels for a chance to meet these rental obligations. And even then, it may not yet be enough. Here’s what AMC had to say in their 10Q:
Given the company’s liquidity issues and in order to establish its long-term viability, the company believes it must continue to find accommodations with its owners to reduce or defer a substantial portion of the company’s lease obligations, in addition to generating sufficient amounts. liquidity through share issues and other potential financing arrangements described below.
While the liquidity that the company has raised has significantly lengthened its liquidity trail, the new debt that the company has issued or that has been incurred, as well as the higher interest rate payments that will be required in the future but which have been largely deferred, will significantly increase its leverage and future cash flow requirements. These future cash requirements, like the company’s deferred rent obligations, will pose a challenge to its long-term viability if its operating profit does not return to pre-COVID levels. Even then, the Company believes that it will have to enter into discussions with its creditors to significantly reduce its indebtedness.
5. It’s the exact opposite of cheap if you look at its market capitalization
AMC’s military has also done a good job of concealing the company’s market capitalization and the exceptional number of shares. They would like to believe that AMC at $ 12 per share is incredible value, especially since it was selling for over $ 35 per share on November 17, 2016.
But what retail investors forget is that AMC’s stock count has grown as a result of its many dilutive offers. With a market cap of $ 5.44 billion, AMC is worth $ 2 billion more today than it was when the company was profitable and its debt to equity was significantly lower in November 2016. In in other words, people pay 58% more today for a company whose operational performance and balance sheet have deteriorated dramatically.
6. CEO Adam Aron’s Compensation Doubled As AMC Diluted Investors
Adam Aron came to be known as the “Silverback” among the Apes (self-proclaimed name of retail investors for their group). But what retail investors forget is that Aron and AMC’s board of directors haven’t always thought about their best interests.
Throughout 2020 and early 2021, AMC had to cut capital spending to the bare minimum, shut down movie theaters, and issue stock and debt en masse just to raise enough capital to keep the lights on. The reward? Shareholders saw their holdings diluted by offers while CEO Adam Aron’s compensation Pink over 100% to $ 20.92 million in 2020 from $ 9.67 million in 2019. Although his salary has declined from $ 150,000 to $ 1.1 million in 2020, stock-based compensation Aron more than doubled to $ 14.8 million. He also won a bonus of $ 5 million.
Let me repeat that last part: In a year where his company struggled to survive and had to turn to stock offerings and debt issues on numerous occasions, Aron received a $ 5 million bonus. of dollars.
7. Hedge funds were net sellers of AMC in the first quarter
Finally, I thought I would address the issue of the commonly touted disinformation regarding institutional and hedge fund ownership in AMC.
You see, AMC retail investors hate institutional investors and hedge funds – unless they buy AMC stocks. Then somehow it validates their interest in owning AMC. They were particularly excited by the data claiming that institutional investors have bought AMC shares.
A quick glance at 13F aggregator WhaleWisdom.com reveals two key results after the release of 13F first quarter data last week. First, hedge funds were net sellers of AMC stocks. They reduced their stake in the company from 16.23 million shares in the fourth quarter of 2020 to 13.66 million shares in the first quarter of 2021.
Second, as 13F total depositors (all institutional investors) increased their nominal stake in AMC, the percentage of outstanding shares held by these companies on March 31 fell from 27.78% in Q4 2020 to 25 , 51% in the first quarter of 2021. data, the big money remains less excited about AMC.
There’s no sugar in my synopsis: I think AMC is one of the worst stocks investors can buy right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.