- Amid AMC Theatres’ dramatic stock rise this year, it traded Wall Street investors for Main Street.
- Irreverent meme-stock traders now own most of the company, which CEO Adam Aron has embraced.
- His canny relationship with these unorthodox investors has helped save AMC, but how long will it last?
In August, at CinemaCon — an annual trade conference for movie-theater owners — some Wall Street research analysts were in for a surprise: Executives at AMC Entertainment would not be meeting with them this year.
While other players like Imax and the rival theater giant Cinemark held the customary tête-à-têtes with the finance community, AMC, the largest theater chain in the world, matter-of-factly explained it wouldn’t be a good use of time to meet with analysts. The company was now primarily owned by retail investors, not the institutional investors research firms count as clients.
“AMC politely told us we’re not relevant,” Michael Pachter, who covers AMC for Wedbush Securities, told Insider.
It wasn’t a slight, but a practical reality and sign of the times.
At AMC’s stock price — which is up more than 1,500% this year — most institutional investors are neither holding the stock nor interested in it. By their traditional measures, AMC is vastly overvalued and destined to fall.
“No investors care,” Pachter said, referring to institutional stock buyers like mutual funds and pensions. Another analyst, who declined to speak publicly, echoed that sentiment.
Instead, more than 80% of the cinema chain’s shareholder base now consists of meme-stock enthusiasts who congregate on Reddit, Twitter, and other forums, and have pumped the company’s shares to record highs in 2021.
They’re a mercurial bunch with motivations and values far different from Wall Street’s ruling class, so AMC’s shareholder turnover has required a commensurate overhaul in investor communications.
Instead of answering to stuffy bean counters who wear suits and Patagonia vests, the company now answers to brash, Extremely Online traders who either love AMC and the movie industry, want to destroy the short-selling hedge funds that they believe are conspiring to put the company out of business, or some combination thereof.
“We’re one of the few companies on the New York Stock Exchange where individual retail investors are clearly in control of the company. They own the company,” CEO Adam Aron told Insider in a recent interview.
That means AMC has “been navigating through uncharted waters,” as Aron put it, requiring a novel approach to investor communications.
But the question remains: How long will it last?
Tired: Earnings per share and debt-to-income. Wired: Dogecoin, non-fungible tokens, and free popcorn.
Communicating with retail investors is a task that Aron is uniquely suited for — his sprawling, 40-year corporate résumé is littered with catchy marketing and loyalty programs that resonated with retail customers at airlines, hotels, cruise lines, and ski resorts.
Back in April, when the company’s meme-stock status was still fresh, Aron and his team made a conscious decision to lean in to social media and embrace these new investors, Aron said. That required an active Twitter presence that transcended traditional corporate speak.
He’s embraced the new role with gusto, amassing a colossal social-media following by directly engaging with the self-styled Reddit “Apes” and speaking their language, which Aron says “humanizes the connection between the investor and company they own.” He recently attracted the attention of Elon Musk, Mark Cuban, and millions more on Twitter by polling followers about accepting cryptocurrencies like dogecoin and shiba inu as payment.
“I write all these tweets myself,” Aron told Insider. “That doesn’t mean I don’t send them around to be looked at or edited by others. But this is not being done by a PR staff or social-media staff.”
AMC also rolled out AMC Investor Connect, a program to communicate directly with shareholders and offer them perks like free popcorn and exclusive screenings. More than 425,000 people have signed up so far, Aron said.
The company has been rewarded with a highly engaged group of shareholders who have held on to the stock — and kept its share price uplifted — far longer than Wall Street’s establishment expected.
“There is a tremendous amount of inbound commentary to the company from our shareholder base, which is illuminating, because it really helps us to understand what the owners of our company are thinking,” Aron said.
The stark contrast in investor communication is especially apparent on the company’s recent quarterly earnings calls. While most public companies cater to Wall Street research analysts, AMC’s earnings calls revolve around retail investors and their ideas for the company.
Last November, with the stock trading below $3 a share and the company staving off insolvency, Aron was peppered with more than 20 questions from seven equity analysts.
On the November call this year, Aron took about 12 questions from his new shareholders. Topics included crypto, NFTs, AMC merch, and eSports, in addition to more prosaic concerns like theater expansion and the company’s hefty debt load. Aron even spoke in his new investors’ language, invoking the Reddit slang FUD — or “fear, uncertainty, doubt” spread by haters — to dismiss the concern about debt, adding that he didn’t lose sleep over it.
Just one Wall Street analyst asked a question, and only after Aron prematurely transitioned into his concluding remarks.
One of his most impressive achievements in investor relations, and a testament to the currency he’s earned with this new investor base, has been his navigation of the thorny issue of AMC executives, himself included, cashing in large portions of their shares.
Among the meme-stock crowd, holding or increasing your shares is a virtue — commonly referred to as “Diamond Hands” — while selling your stake is a grievous faux pas and something mockingly referred to as having “Paper Hands.” Some analysts expected executives off-loading their shares would infuriate the Main Street investors, causing the stock to fall.
Aron elected to get ahead of the issue this summer with transparency, repeatedly alerting investors that he would sell a portion of his holdings over the coming months for estate-planning purposes while vowing to remain heavily invested in the firm.
AMC execs sold $55 million worth of shares in November — $25 million by Aron — according to SEC filings reviewed by Insider via Sentieo. More will be sold in the coming months as part of a prearranged plan handled by his bank, Aron has said.
“I can only imagine that naysayers and others who wish AMC harm will try to spread fear, uncertainty, and doubt in this regard,” Aron said on the November earnings call.
AMC’s stock remained stable through it all.
“They came out unscathed,” said Alicia Reese, a Wedbush analyst who works with Pachter.
Aron’s showmanship ‘kept this company alive’
Aron isn’t just paying lip service to the Apes. AMC has rolled out several initiatives pushed by his new base in recent months.
After announcing that AMC would sell its popcorn in supermarkets and malls, shareholders DMed him suggesting that it include “golden ticket” surprises in some boxes, such as discount certificates or free movie vouchers.
“I think it’s a great idea. And write it down, folks, we’re going to do it,” Aron told investors.
His inbox has been “filled with ideas from our shareholders about NFTs,” the massively popular blockchain tokens that confer ownership of digital objects ranging from artwork to sports highlights to, well, just about anything you can imagine.
Aron said on the November earnings call that the company was discussing it with Hollywood studios, and sure enough, AMC partnered with Sony and Wax Blockchain to offer NFTs to select customers who preordered tickets to “Spiderman: No Way Home.” All 86,000 were quickly snapped up, helping produce the second-largest one-day ticket sales in company history.
—Adam Aron (@CEOAdam) November 28, 2021
At the behest of the masses, many of whom invest in crypto with as much fervor as they invest in AMC, the company now accepts bitcoin, ethereum, bitcoin cash, and litecoin as payment options. And thanks to a “tidal wave” of interest from shareholders, Aron has said they’re working on dogecoin and shiba inu coin as well.
The company has also confirmed it’s seriously weighing whether to launch its own crypto coin — AMC is closely watching the regulatory landscape, Aron said — though it’s not yet clear what kind of impact that would have.
However, most of these shareholder-led initiatives are fun dalliances that have limited or unclear revenue upside for AMC.
The company isn’t holding any crypto on its balance sheet — a third party is handling that — it’s simply an alternative form of accepting the same ticket and concessions revenue. It’s not a competitive advantage, as Pachter put it, because “any business can do that.” (Indeed, its chief US rival, Regal, has accepted crypto as payment within its theaters for more than two years).
The NFT promotion spurred stellar early ticket sales that eclipsed those of competitors, Aron said, though marquee Marvel movies are reliable box-office blockbusters regardless.
Business growth will continue to hinge primarily on Hollywood producing compelling movies that customers will flock to see and how much of a split AMC can negotiate to exhibit them.
But Aron’s ability to tap into the zeitgeist keeps his millions of fervent shareholders emotionally invested, a boon for AMC’s stock price and potentially box-office sales as well.
Wisdom of crowds: AMC shareholder ideas in action
- Idea: Accepting bitcoin, ethereum, bitcoin cash, and litecoin as payment
Status: Complete - Idea: Deploying NFTs to promote movies
Status: Complete - Idea: Accepting dogecoin and shiba inu coin as payment
Status: In progress - Idea: Putting “golden ticket” surprises in AMC popcorn in supermarket aisles
Status: In progress - Idea: Launching an AMC cryptocurrency
Status: Under consideration - Idea: Selling AMC-branded merchandise
Status: Under consideration - Idea: Offering eSports in theaters
Status: Under consideration - Idea: Developing movies in-house or in partnership with a studio
Status: Under consideration - Idea: Making AMC’s official mascot a gorilla
Status: Unclear - Idea: Partnering with fellow meme-stock GameStop
Status: Unclear - Idea: Reestablishing drive-in theaters
Status: Rejected
Sources: Earnings calls, press releases, public announcements via Twitter
“He’s absolutely courting these investors so they want to continue holding long term,” Reese said. “Most of it doesn’t matter, but it’s keeping investors happy by entertaining them.”
Meanwhile, AMC has built a $1.6 billion war chest, capitalizing on the surging demand to sell more than a $1 billion in stock. That will help in paying down debt and also pursuing new initiatives.
“We’re going to make sure we use that war chest as the precious thing that it is,” Aron said, adding that it should last the company for “years and years.”
The company is already full-speed ahead on entering the $6 billion retail popcorn market, which will require investment to get off the ground. Other ideas in the mix include a branded credit card, AMC-branded merchandise, producing its own movies, expanding its theater footprint, or a corporate acquisition outside of the movie industry.
But the cash pile will also help AMC ride out any further complications from the pandemic, especially as the new Omicron variant rears its head.
“To Adam’s credit, his showmanship has kept this company alive. This company was running out of cash,” an analyst told Insider. “He did a brilliant job raising money when the company needed it.”
‘Now what?’
Most Wall Street analysts haven’t turned their back on AMC, even though they’re not the company’s primary concern anymore. For his part, Aron said he’s still happy to speak with securities analysts if they want to talk to him.
In a practical sense, it’s a very easy company for analysts to cover: Their clients don’t care about AMC and won’t until its valuation more closely reflects its ability to produce profits.
But tracking its progress is still key for analyzing competitors. And analysts expect the company’s stock to come back down to earth eventually and for institutional investors to return when it does.
They must nevertheless tread carefully. AMC’s new breed of shareholder is intensely passionate, but many are irreverent and uncouth.
When Wedbush downgraded the stock in early November to a $7.50-a-share price target — it was trading at over $40 a share at the time — the AMC Apes lashed out and sprayed Reese’s contact information over social media. That resulted in a flood of misogynistic abuse on Twitter, LinkedIn, Reddit, and even over the phone from angry AMC backers who believed she was in cahoots with shadowy hedge funds they think are trying to torpedo the firm.
“I got totally dragged,” Reese said. “I have people emailing my personal email and saying they’re going to be so happy to put me in prison one day.”
Reese was initially concerned for her family’s safety. She stopped paying attention for her mental health, she said, and the episode died down after a couple of days. Had any of these AMC loyalists read the report, they’d know Wedbush is actually positive about AMC’s future. The firm just doesn’t believe AMC can trade at such lofty heights in perpetuity, absent a dramatic increase in profits.
Aron said it’s not his place to comment on AMC investor behavior, citing his recurring refrain that they own the company and he works for them.
When and whether AMC’s stock will come down remains a mystery. It has dipped around 30% in the past month, but such
volatility
has been common for the stock this year, and it’s still up many multiples over its price range last year.
The company’s financial outlook is much improved from the darkest days of the coronavirus pandemic, especially since Hollywood is once again filling cinema screens with a consistent and compelling batch of movies. Attendance is on the rise, hitting 40 million at AMC globally in the third quarter, an 81% increase from the prior quarter.
But that’s still far behind pre-pandemic levels, and AMC continues to bleed hundreds of millions of dollars each quarter.
“Adam Aron is a capable, competent CEO who has managed his way during the pandemic and steered the ship clear of all the icebergs,” Pachter said. “But now what?”
Fortunately for Aron, his current crop of investors isn’t fixated on that, and the company is incentivized to keep them around for as long as they can.
“We owe it all to this new shareholder base who rallied around the company and allowed us to weather the COVID storm and then succeed,” Aron said. “They’re quite proud of the fact that they saved the company.”
This news is republished from another source. You can check the original article here
Be the first to comment