AMC Entertainment (NYSE:AMC) stock fell on March 1 and overnight after CEO Adam Aron warned that failure to convert its AMC Entertainment Preferred Equity Units (NYSE:APE) to common stock could force him to create more APEs.
Since its meme stock heyday in early 2021, AMC has been raising cash by selling stock. When investors stopped Aron from issuing more common stock, he created the preferred APE issue. APE was due to open on March 2 at about $1.83, AMC at about $6.20. Shortly after the market opened, AMC dropped over 5% and APE over 8% in price.
The Way of Waterfall
Not all the news at AMC is terrible.
Fourth quarter numbers beat estimates, although there was still a net loss of $288 million on revenue of $991 million. It was the company’s 14th straight quarterly loss, going back to before the Covid pandemic.
The pandemic eviscerated the company, once a profitable $5 billion/year enterprise. Its 2021 revenues were half that. While 2022 represented a recovery with revenue of $3.9 billion, losses continued. Even Avatar: The Way of Water, with box office receipts of over $2.27 billion and no signs of leaving theaters soon, failed to yield AMC a profit.
Aron wants both an increase in authorized shares and a 1 to 10 reverse stock split. If he succeeds in winning the vote and winning in court, APE shares will triple in value. The stock would, in theory, trade at over $60/share. But those who bought the 2021 “meme” will have their interests watered down, and future CEOs will have a legal way to get around authorized share limits.
AMC Stock: What Happens Next?
Aron has spent three years selling hope in the form of stock. He says theaters are evolving, that 3D events like Avatar, innovations like seat-based pricing, and restaurant-style concessions mean prosperity is just around the corner.
Personally? I’d rather stay in and watch Netflix (NASDAQ:NFLX).
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.