Here is Why AMC May Announce a Stock Split This Year

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As the largest movie theater chain in the world, AMC Entertainment Holdings, Inc. (NYSE: AMC) has had more roller-coaster leaps and dives than an Indiana Jones movie, with numerous entertaining and infuriating events at each junction for shareholders. Due to current market conditions and the results of business decisions made by management over the past few years, there are a number of reasons for an argument to be made that AMC may announce a reverse-split sometime before the end of 2024. First, though, some context:

Comeback After Being On the Ropes

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Becoming a meme stock gave AMC a new lease on life as it was on the ropes and about to go down for the count.

Taking full advantage of social media, AMC engaged in some silly PR stunts and dubious business decisions. For example, it gave out free popcorn and CEO Adam Aron gave a 2021 interview on YouTube without wearing pants. Such moves had analysts shaking their heads and drafting AMC obituaries.

Then, thanks to Reddit (NYSE: RDDT) and Robinhood (NASDAQ: HOOD), AMC rose, phoenix-like, from the ashes, to soar again – this time as a meme stock. Raising the company’s profile gave AMC’s stock price a boost, which the company then inexplicably used to purchase a gold mine. 

A Reverse-Split That Wasn’t Exactly One

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AMC announced a 1-for-10 reverse stock split in 2023, but subsequent management moves resulted in even greater stock dilution.

AMC then proceeded to execute a complex plan to recapitalize going forward.

In August, 2023, AMC executed a 1-for-10 reverse split, purportedly to raise the stock price and to make it more viable to institutions for investment. However, AMC also needed to raise more capital, so it created a new type of preferred stock units that were acronymed as APEs (AMC Prefered Equity Units), which were sold to raise more money. A subsequent shareholder vote was held to issue additional common stock for further capital raising, which would convert the APEs into new common stock, albeit with old common shares converting to 1.13 new common stock shares.

This triggered a class action suit that, long story short, AMC subsequently won. It then issued an 48 million more shares, which raised an additional $350 million and reduced debt by $62 million in December, 2023. However, while AMC now has more capital, continuing in theatrical exhibition, a platform that a number of analysts believe is a dying business model, raises new challenges for Aron and Company. Here are three (3) reasons why a reverse-stock announcement may be in AMC’s future:

Video Streaming

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Video streaming poses the biggest threat to the future of theatrical exhibition for films.

Netflix (NASDAQ: NFLX), Disney+ (NYSE: DIS), Amazon Prime (NASDAQ: AMZN) and other media entertainment companies have all seen the handwriting on the wall: streaming is replacing not only theatrical viewing, but even conventional network television and cable. Recent exclusive NFL games and the forthcoming Mike Tyson-Jake Paul boxing match announcements going to direct to Amazon Prime and Netflix, respectively, demonstrate this trend. 

Unless it can find additional revenue generating platforms to capitalize on its brand cache, AMC may find itself going the way of Blockbuster Video.

Soaring Food Price Inflation

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Popcorn and other concession stand foods and beverages are the biggest margin items for the movie theater industry.

A relatively well known “secret” of the movie theater business is that the concession stands are the highest margin in-house businesses. While AMC’s margins for ticket sales are 52%, its food and beverage margins are normally 81%. AMC’s costs for popcorn, nachos, candies, sodas, and other concession favorites have all risen during the post 2020 inflation price hike, and those prices are still rising. 

Price in “Penny-Stock” Territory

One of the rationales for the 2023 reverse split was to get the stock price high enough to make it attractive to institutional investors. With market price at the time of this writing under $5 but with considerably greater dilution from the 48 million shares issued in December, AMC finds itself in the same predicament, only now with a greater urgency. In order to make deals to address the above items, AMC needs the support from the capital markets while it still has loyalty among shareholders and social media followers.

AMC has certainly been a wild ride for shareholders. Can it pull another rabbit out of the hat? The entertainment business has seen more astonishing comebacks in the past, so perhaps Adam Aron has more aces up his sleeve, and a reverse stock split might be one of them.

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