AMC Becomes Penny Stock

The train wreck called AMC Entertainment Inc. (NYSE: AMC) has a stock price of $4.03. A penny stock is defined as one that trades below $5. AMC’s shares collapsed to that level early this month and have not recovered. There is a good reason. The movie theater business is dying, mostly the victim of streaming and the fact that people have not returned to theaters after they left due to the COVID-19 pandemic.

AMC has done its best to show it can survive. A series of maneuvers took its latest turn as CEO Adam Aron said he did not want an increase in compensation next year. It is merely a gesture that means little.

AMC announced it would reverse split its stock. If anything, that distressed investors. It also raised money by selling more of what it calls its APE units. While this brings in $100 million, it may dilute current holders of common shares. Current debt holder Antara bought these units but can sell them after 90 days. That may put more pressure on the price of the common shares.

Despite this flurry of activity, AMC cannot grow fast enough to make a difference in its financial future. Although management expects theatergoers to return in large numbers, in the most recent quarter, revenue rose only 27% to $978 million. The company lost $227 million, which is not sustainable.

The release of several movies, led by “Black Adam” (which had good box office sales), is the AMC case for its recovery. In reality, domestic box office sales this year have been $7.2 billion. This compares to a pre-pandemic figure of $11.4 billion in 2019. That $11 billion yearly number is unlikely to be seen again.

AMC is up against an army of streaming services, most of which do not plan to release their movies in theaters. The largest services have over 100 million subscribers and, in some cases, double that. Amazon Prime, Netflix and Disney+ are all at that level. HBO Max, Hulu and Paramount+ are on their way. Apple TV+ also can spend enough to hit the 100 million plus subscriber goal.

AMC’s future is endangered, and that will not change unless it goes out of business.

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