Although meme traders often spark ridicule among the traditionalist analysts who have been forced to recognize them, in some sense, you must respect their directive regarding companies like AMC Entertainment (NYSE:AMC). A struggling outfit before the pandemic, the public health crisis initially devastated AMC stock — through no fault of the issuing company.
In any other circumstance, the outcome would likely be the same: a sickening decline to irrelevance, followed by a demoralizing (is there any other kind?) bankruptcy proceeding. Many opportunists who were on the bearish side of the camp saw the writing on the wall. They decided to bet against AMC stock to their eventual chagrin.
As you know by now, the concept of the short squeeze spread far and wide across various social media platforms. Through a seemingly coordinated effort — perhaps learned through cooperative multi-player gaming initiatives — meme traders robustly piled onto the contrarian route. Instead of doing what seemed intuitive, they focused on bolstering AMC stock.
Forced to cover their negative bets — since there’s no ceiling as to how high a stock can go — short traders bought back the borrowed shares they initially sold to instigate their bearish positions. Of course, that resulted in upside pressure for AMC stock, resulting in the crazy landscape we see in the market today.
But as your typical meme or meme-ish trades have begun losing their luster, the looming mediocrity raised a question: Is there any life left in this phenomenon or should stakeholders exit while they still can?
According to a CNBC report, at least one trader has answered that inquiry with a million-dollar bearish bet against AMC stock. I hope for the sake of that individual’s safety that they never reveal their identity. But seriously, is the jig up?
AMC Stock Could Be Tied to a Dying Business
Almost two months ago, Barry Diller, a longtime movie industry executive, declared succinctly and bluntly that the “movie business is over.” And if you didn’t get the message, Diller clarified, stating that the “movie business as before, is finished and will never come back.”
To me, those sound like fighting words, especially when you’re dealing with the ardent bulls backing AMC stock. However, facts are facts. AMC generated $1.24 billion in revenue in 2020, a staggering 77.3% shortfall from the prior year’s result. Not only that, on a trailing-12-month basis, the company has only produced $875 million in sales.
True, society really didn’t start reopening until a few months ago. Nevertheless, these are horrible numbers. Still, that’s not what’s bugging Diller. Instead, he feels that “streaming has altered the film industry in substantial ways, including the quality of movies now being made,” according to a report on NPR.
Citing decisions by several media conglomerates to release new films at the box office and on streaming services simultaneously, Diller stated that “There used to be a whole run-up.” Prior to the pandemic, studios tried to gin up interest in upcoming films, much like management teams of companies seeking to go public do during investor roadshows. Now, those days are gone, according to Diller.
In its place is content that’s geared not toward an artistic pursuit but rather a cynical capitalistic intent. For instance, the Hollywood exec called out Amazon (NASDAQ:AMZN) and its Prime Video streaming service. “The system is not necessarily to please anybody,” Diller said. “It is to buy more Amazon stuff. That’s not a terrible thing. It just doesn’t interest me.”
A Painful Irony Haunts the Cineplex
As much as it would be nice to see AMC stock survive this mess — I’m not just saying that as a shareholder but also as a moviegoer — it’s hard not to appreciate where Diller’s coming from. It’s not so much about being negative on the cineplex industry but rather seeing the picture for what it is.
And this picture isn’t a Rorschach test. People were talking about streaming’s competitive impact on the box office long before the pandemic.
Not only that, it’s difficult to ignore a key irony: the folks that are the most supportive of AMC stock have been the ones that have contributed to its demise (prior to the short squeeze). According to data from Statista.com, a May 2020 survey in the U.S. revealed that “70% of respondents ages 18-34 stated that they currently subscribed to a streaming service, compared to just 49% of those age 65 or above who said the same.”
With that kind of split loyalty, I’m not sure where AMC stock will go next. Personally, I’m playing with house money and I might stay the course. But those who don’t have that luxury may want to consider trimming some exposure just in case.
On the date of publication, Josh Enomoto held a LONG position in AMC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
