The woes continue for AMC Entertainment Holdings (AMC 1.32%) shareholders. The stock tumbled 8% on Tuesday, the result of a market sell-off that was made worse by another rough weekend at the box office. AMC shares have now plummeted 31% in January through Tuesday's close. It's the fifth consecutive monthly decline at AMC, and January is shaping up to be the worst of the streak's slides.
How did AMC get here? What will it take for AMC stock to win back its mojo? Let's start with Tuesday's sell-off, and work our way back before working our way into the future.
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Screen play
It's been a rough few months for growth investors, but AMC stock's 74% plunge since peaking in early June of last year isn't exactly par for the bunker-laden course. It's also not your prototypical growth stock. Most of the market's biggest winners of 2020 and early 2021 belonged to businesses that got better through the pandemic. They are better off now than they were before the COVID-19 crisis, and this holiday weekend at the box office shows how far AMC has to go to get back to where it was two years ago -- before the world caught fire.
Domestic ticket sales clocked in at $84.9 million over the extended holiday weekend. This may seem like a big number, but it's not encouraging at all for the historically potent weekend. Two years ago the country's movie theaters raked in $205.3 million in ticket sales on Martin Luther King Jr. weekend. It was $152.5 million and $195.8 million in box office receipts for the two previous years over the same weekend. When ticket sales are less than half what they were two years ago it's hard to get excited about the long-term prospects for the multiplex industry.
The bullish counter is that AMC's revenue didn't match the industry's 59% decline over the weekend from where it was two years ago. AMC has made some smart moves to grow its share of the market. It's also making more per guest by generating a higher concessions attachment rate. However, this doesn't justify why AMC's market cap has exploded 13-fold over the past two years (as the stock price tripling is multiplied by the almost fivefold increase in shares outstanding).
Two years ago, AMC commanded a market cap of $742 million by the end of the first trading day following the Martin Luther King Jr. holiday weekend. Now the stock has a $9.7 billion market cap with the exhibitor's chunky debt pushing its enterprise value up to $19 billion.
Plot twist
The meme stock revolution was a sight to behold as it happened, and it's going to be a case study broken down for years to come. Online communities banded together to target heavily shorted and out-of-favor stocks, buying en masse to shake out the naysayers. AMC bears will argue that the fundamentals remain crummy for AMC, as ticket sales for the industry peaked two decades ago with no signs of recovering. The studios that produce the product that multiplex operators need have no intention of returning to the previous model of at least three months of theater exclusivity for new releases. Hollywood's biggest players have streaming services to build up with content, making theatrical distribution a secondary revenue stream instead of the primary driver outside of the most prolific superhero flicks.
Yet the meme stock movement did change the fundamentals. AMC as a brand has received the kind of visibility over the past year that can't be bought. If AMC continues to gain market share or if its push later this year into retail kiosks outside of the multiplex with its popcorn is successful it will be largely the handiwork of the millions of retail investors banding together behind the brand.
AMC may have done its "diamond hands" a disservice. Online groups and social media influencers preached holding tight to shares bought as a way to smoke out the folks betting against the theater giant, but it was the company itself that broke the chain. AMC has increased its share count from 107.7 million to 513.3 million over the past year, using its buoyant share price in 2021 as a way to raise money to cover its losses and meet its debt obligations. Since November we've seen top executives sell most of their vested shares.
It's not a good look. AMC's CEO has been selling stock and debunking conspiracy theories. The stock's nearly 75% plunge has gnawed away at the credibility of the leading bullish influencers with thin histories of market success before last year's craze. However, this strange stew that's been simmering over the past year has made AMC a stronger company than it was a year ago. It's not the kind of company an acquirer would rationally pay the $19 billion sticker price for right now -- and much less a buyout premium on top of that -- but AMC has carved out a new path where it may not follow its rival movie theater stocks into obsolescence. It will be the last multiplex operator standing if it comes to that, but it has bought itself enough time and brand awareness to reinvent the industry's business model before it's too late.
