Before retail investors jumped in and bid up the price of AMC (AMC -6.16%) stock, the company stood in real danger of running out of cash. In the first quarter ending March 31, AMC burned through approximately $120 million per month. The coronavirus pandemic was wreaking havoc on its business, forcing it to close its doors to moviegoers and lose hundreds of millions of dollars in potential revenue, yet ensure that its properties were maintained while its staff was paid.
Management's top priority remained liquidity management, and as on March 31, AMC had $1 billion in liquidity. After all, the race against the coronavirus over the last 14 months has put the company in an unenviable position. So how did AMC end Q1 with the highest quarter-ending liquidity in its 101-year history? That's where retail investors come in.
No longer racing against the coronavirus
Millions of retail traders bid up AMC's stock price by over 2,670% year to date. This helped the company raise additional funds in the equity and debt markets. In the last few months, AMC raised $1.25 billion in cash to help fortify its balance sheet. The company more than doubled available liquidity and staved of imminent insolvency. In fact earlier this month, AMC raised $587 million through a sale of nearly 11.6 million shares at an average share price of $50.85. If retail investors had not been willing to buy and hold shares, the company could have only been able to raise a fraction of that amount. There are now 4.1 million individual shareholders of AMC stock who own an average of 120 shares each.
So how much time has AMC bought and stave off a potential bankruptcy as a result of the capital infusion?
As mentioned earlier, with a monthly cash burn rate of $120 million, the movie theater chain runs the risk of running out of cash in a little more than eight months if revenue remains at zero, but that seems unlikely. That said, investors cannot expect normal operations -- read familiar houseful theaters -- to resume any time soon due to capacity restrictions despite most cinema theaters now having reopened. Moreover, even though vaccination programs are well under way and states are easing business restrictions, there's always the risk of new variants of the virus reducing the effectiveness of vaccines and case loads spiking.
What could this mean for investors?
Much has changed since the company reported its first-quarter results. States are easing restrictions as more folks are getting vaccinated, major movie studios have resumed theatrical releases. With the new capital infusion, thanks to retail investors, it could mean the risk of running out of cash is now much lower for AMC.
Moreover if operations normalize, AMC could see its revenue jump back to pre-pandemic levels of $5 billion annually, generating operational cash flows of $500 million per year. However, it still needs to be seem how many movies will be released at the box office with production houses increasingly choosing to release movies over streaming platforms. This is the real danger to the movie theater business that's been in secular decline even before the pandemic.
But there's no doubt without the help of retail traders, AMC wouldn't have been able to raise the capital needed to weather the storm.