Sometimes a company goes too far to achieve near-term popularity at the expense of long-term sustainability, and that could be AMC Entertainment Holdings (AMC 1.16%) right now. CEO Adam Aron is tabling a proposal that was supposed to be voted on at this month's annual shareholder meeting that would have authorized the selling of 25 million more shares of AMC stock.
Aron is framing the decision to nix the stock sale as a victory for retail investors, but it's an odd flex. AMC has more than quadrupled its share count over the past year. There are now more than 500 million shares outstanding. Would adding another 5% to its share count really rock the boat? Aron is also promising that there won't be any new votes authorizing stock sales until at least next year.
If AMC stock is trading this high or higher come 2022 it will be easy to applaud Aron's decision as a way to lift the ceiling. The narrative changes if the stock is lower, of course. In that scenario AMC could've helped raise its floor by selling freshly minted stock at an elevated price point. You can't pander to the floor and the ceiling at the same time, so maybe it's fitting the multiplex itself has a slanted floor and a high ceiling.
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Shares and shares alike
After seeing its outstanding stock count bloat by nearly 400 million -- at much lower price points -- over the past year it may seem silly to quibble about the fate of another 25 million incremental shares. The thing is that 25 million shares right now would raise $1.3 billion in liquidity. AMC's market cap a year ago was less than $500 million. The stock price and share count have grown substantially in that time.
AMC is doing a lot of things right with its newfound popularity. It's seemingly rewriting the playbook for when a consumer-facing brand becomes a meme stock, and that's providing it a boost that even bears can't deny.
AMC's move to unify its growing base of retail investors, turning them into willing recipients of its marketing missives, didn't take much. All AMC had to do is dangle a free bucket of popcorn to get them to sign up for a new Investor Connect emailing list. Now it's trying to catch that same lightning in a bottle by offering a free soft drink to its AMC Stubs members if they make a purchase on its fledgling streaming service.
However, AMC itself still has a long way to go before its business is doing as well as its stock. Folks are coming back to the local multiplex, but audiences are still less than half of what they were two years ago. The $87.3 million in domestic box office receipts collected by exhibitors during this four-day holiday weekend is a sliver of the $183.8 million theaters across the country raked in during the first three-day weekend of July in 2019.
The good news is that the Hollywood pipeline is only going to get better at this point. The sticking point here -- in terms of AMC refusing a stock sale -- is that its market cap has popped 20-fold over the past two years when you multiply the outstanding shares by the stock price.
There is merit to the bullish argument that AMC will be stronger than it was before, especially if it uses its expanding consumer appeal to not only take market share at the multiplex but also to become a force in the streaming space where valuation multiples are more generous. However, if you can raise $1.3 billion by printing just 5% more shares why wouldn't you do it? A year ago 100% of the shares were worth less than $500 million.
Appealing to retail investors helped get AMC stock as high as it is right now, and that's great. If it wants to become one of the leading entertainment stocks it also may help to make smart financial moves, too.
