Insights

Why Is AMC Entertainment Tumbling Today?

What happened

Shares of AMC Entertainment (NYSE: AMC) are tumbling 7.2% at 10:41 a.m. ET on Friday after the company reported second-quarter earnings yesterday following the market close, but all anyone wanted to talk about was the special preferred stock dividend it will issue on a 1-for-1 basis.

The special dividend will be issued to shareholders of record as of Aug. 15 and paid on Aug. 19. It will trade under the ticker symbol APE, which technically refers to “AMC Preferred Equity,” but is clearly also a nod to the investors who have carried the stock over the past year or so and who refer to themselves collectively as “apes.”

So what

There are several reasons AMC is issuing the preferred stock. Because the theater owner raised massive amounts of cash during the pandemic by issuing scads of new shares, it has tapped out its ability to raise more money in that fashion.

Yet AMC needs more cash to survive. Although CEO Adam Aron said the new issue will not be dilutive “yet,” he also told investors in his shareholders letter that APE will give it the flexibility “to raise money if we need or so choose, which immensely lessens any survival risk.”

Yet AMC has some $5.5 billion in debt, and though it reported $1.1 billion in revenue compared to $445 million last year, that’s still significantly below the $1.5 billion in revenue it reported in 2019. And though its net loss improved to $121 million from $344 million, three years ago it had profits of $49 million. Attendance was 59 million this quarter, 97 million in 2019. 

Now what

Aron says the preferred stock will be a means of performing the share count investors have been demanding. Although Aron says AMC hasn’t seen any evidence of synthetic shares, by issuing the stock, which will only go to shareholders, it will discover any fake shares that may exist.

AMC will also issue non-fungible tokens (NFTs) to investors to celebrate the preferred stock issuance.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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