Staying afloat meme11/24/2023 AMC Entertainment's valuationĪlthough AMC Entertainment is seeing a revenue recovery following the end of COVID-19 restrictions and is expected to grow its top line by 19% this year, the company has not yet proven to the market that it can operate its movie theaters at scale and at a profit. As of August 15, 2023, AMC Entertainment had a short interest ratio of 33% which is extremely high, and the latest equity raise may further fuel short selling activity. What I am especially concerned about is that AMC Entertainment continues to have a very high short interest ratio, which may increase further as the sharks start circling. AMC Entertainment's equity offer may further fuel short interest ratio The size of the equity offering represents about 25% of AMC Entertainment's current market cap of $1.35B, resulting in massive dilution for shareholders. Shares dropped almost 37% on the announcement, as investors are not only worried about the financial/cash burn situation of AMC Entertainment but also about the impact of dilution.Īssuming 40M shares are being sold at a current price of $8.62, AMC Entertainment could potentially raise $345M in proceeds (also assuming that AMC's share price won't drop further). Considering this high level of cash burn, it was only a question of time until AMC Entertainment was forced to raise new capital from investors.Īccording to a material (8-K) disclosure dated September 6, 2023, AMC Entertainment entered into an equity distribution agreement with a number of investment banks in order to sell 40,000,000 shares of Class A common stock to investors. This means that, for every dollar in revenues, AMC Entertainment lost $0.13 in free cash flow. In the first six months of FY 2023, AMC Entertainment lost $299.3M in free cash flow and reported a cumulative adjusted net loss of $186.3M. And so far, AMC Entertainment has not found a recipe to improve its situation fundamentally. While AMC's top line recovery is solid, the firm continues to face serious challenges regarding free cash flow and profitability. In the second quarter, AMC Entertainment reported a 12.2% increase in attendance numbers (to 66.4M) for its movie theaters compared to the year-earlier period and a 15.6% increase in the company's top line. AMC Entertainment's high cash burn, new stock offeringĪlthough AMC Entertainment benefited from a recovery in attendance numbers after COVID-19 restrictions were lifted in FY 2021, the company continues to be in a dire position, from a financial perspective. AMC Entertainment has so far managed to stay afloat, but the company's latest equity offering will further dilute shareholders and may be the final nail in AMC's coffin. I covered AMC Entertainment during the pandemic and mentioned the risk that came with investing in meme stocks that attracted a large amount of attention: AMC Entertainment: Don't Touch It. The latest equity offering is a serious warning sign for investors that AMC Entertainment may go out of business, and I believe the risk profile remains highly skewed to the downside. The company only recently conducted a reverse 1-for-10 stock split, and the short interest ratio remains exceptionally high, indicating that the market expects high cash burn trends to persist. AMC Entertainment's fundamentals, even after the COVID-19 pandemic ended and the company reported a rebound in attendance numbers, continue to look weak, especially regarding free cash flow. Shares of AMC Entertainment ( NYSE: AMC) plunged close to 37% on Wednesday, the largest drop since 2021, after the movie theater company disclosed that it seeks to sell another 40M more of its shares.
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