No one should be surprised by the dramatic slowdown for the multiplex industry. The highly anticipated summertime theatrical releases premiered one to three months ago, and it's usually a seasonal lull this time of year. Any bear gloating over the mere $65.2 million in domestic ticket sales collected across all chains this weekend -- the softest showing since late February -- is missing the big picture (figuratively and likely literally).
AMC Entertainment Holdings (AMC 0.45%) has already proven that the silver screen isn't dead. The peak summer viewing season was great when it mattered the most, and we should start seeing movie studios make sure that future releases will have time to shine at a multiplex near you.
The problem now is that AMC's CEO may have finally gone too far. Adam Aron is being particularly chatty about his company now that the stock is on the rise, up 152% since bottoming out briefly in the single digits three months ago. His social media postings are often galvanizing moments for AMC's millions of retail investors. A little bravado isn't rare with corporate bigwigs, but there was something problematic with a tweet that Aron made over the weekend.
Blindly fear dilution? You miss crucial FACTS. In Jan '21 AMC issued shares, AMC share price soared. May/June '21 more AMC shares, again our stock soared. Stopped selling shares July '21, $AMC started a long fall. APEs announced last week, $AMC up again. APEs makes AMC stronger.-- Adam Aron (@CEOAdam) August 13, 2022
There's a loaded moving truck backing up into Aron's driveway with this post, and by that I mean that there's a lot to unpack here. If you're not familiar with the dilution at AMC, consider that the share count for the country's largest multiplex operator has gone from 104 million to 517 million over the past two years. If you owned a piece of the company two years ago, that position is just a fifth of that stake today.
AMC needed to raise money when the pandemic came, and unfortunately it panhandled for those proceeds when the stock was lower than where it is right now. Is the balance sheet better right now? Not really. Long-term debt is essentially where it was two years ago, and borrowing costs are rising. AMC's negative shareholder equity has only widened.
The dilution was a costly but necessary lifeline. That's a debate for another time. The problem with Aron's tweet is that he's making it seem as if the stock has popped in the past whenever AMC is cranking out new shares, or -- as it's doing this month -- rolling out an entirely new class of shares.
It's an irresponsible notion to put out there. There are plenty of smart investors among the 4 million retail AMC shareholders, and they can perform the rigorous research and go through the due diligence to arrive at a bullish thesis for the popcorn kernel colonel of movie theater stocks. However, there are also others that are impressionable momentum players just wading into the market for the first time. They may not get why a nearly fivefold pop in the diluted shares outstanding over the last two years is a drag on valuation.
His timeline of stock rallies isn't fair or complete. AMC peaked on the second day of June last year. The stock didn't slide after that because AMC would stop issuing shares a month later. It began to drop because the market was absorbing the new shares that were still being pumped out the day after the stock hit its all-time high. What's next? Is Aron going to tweet that the stock rallies after he unloads his vested shares?
Aron is at his best when he's going around the country visiting with investors and movie buffs at screenings. He has raised the bar on how a CEO of a meme stock can maximize the opportunity of visibility to create an engaging experience for shareholders. AMC has done a lot this summer to win the respect of the investing community. Let's not squander that goodwill for a misdirection play.