AMC Entertainment (NYSE:AMC) short sellers are down after the movie theatre chain maintains a positive 33.33% gain this year-to-date.
Those still in profit may be incentivized for a buy-back as current developments in the company signal the end Wall Street’s short thesis.
The movie theatre industry is expected to receive an injection of $1 billion per year by Amazon Studios.
“While a $1 billion annual investment for film development is on the lower end of what major Hollywood studios spend each year, it’s a positive sign for the movie theater business, which has struggled in the wake of the pandemic,” said CNBC.
AMC Entertainment is urging investors to vote yes on proposals that will help it raise cash and continue to wipe out its debt.
The company progressed every quarter since 2021 when retail investors saved the company from bankruptcy.
CEO Adam Aron has been able to raise cash since through dilution, the introduction of APE, merchandise, and other exclusive collectibles.
AMC Entertainment raised $600,000 from selling one item in just one day.
“If we did that EVERY day (which we can’t, not all movies of Ant-Man appeal with families), would be $220 million of annual revenue! More collectibles ahead with future movies.”
Positive Outlook for the Movie Industry
Wall Street’s short thesis relied heavily on the death of the movie theatre industry.
Bankruptcy would allow hedge funds to profit big from AMC’s downfall without having to pay a single dime on taxes, hence why Wall Street overleveraged.
However, this isn’t the case anymore, not in 2023 – three years after the pandemic lockdowns.
In the past three years, AMC Entertainment has managed to survive long enough to the point where it may break through and thrive.
“What we saw during the pandemic is a lot of studios experiment with different options releasing films straight to streaming platforms, releasing them simultaneously in theatres and streaming, and what worked the best was releasing straight to theatres,” said B. Riley Securities Senior Analyst Eric Wold.
The analyst predicts AMC to have free cash flow by 2024 the earliest.
AMC Entertainment had $579,000 of operating cash flow in 2019 and $60,900 in free cash flow, pre-pandemic.
During the lockdowns AMC posted -$1,129,500 in negative operating cashflow but number figures improved in 2021 to -$614,100.
Last year’s numbers have yet to be updated.
Still, the progress is undeniable.
AMC Entertainment may have fallen behind on accruing debt due to the pandemic, but time has been an ally for the company.
This is why it is proposing a 1-for-10 reverse stock split.
Shareholders Get on Board with AMC Proposals
The proposals would authorize AMC to increase the number of common stocks from 524,173,073 to 550,000,000 and go through a reverse stock split to increase the company’s share price.
The strategy will buy AMC Entertainment time while allowing it to raise cash.
Short sellers will now be shorting the movie theatre chain from a higher price point meaning they can no longer attempt to get share prices below $3 again.
While shorting will heavily contribute to sudden drops in the share price, AMC Entertainment makes another stride towards eliminating debt and becoming a free cash flow company again.
But I’m curious to hear your thoughts on today’s developments.
Leave a comment down below.
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