How The ‘Apes’ Took Over AMC – The Journal.

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Ryan Knutson: 2021 was the year of the meme stock. People who’d never invested before jumped into the market head first. And a lot of companies benefited, Gamestop, Bed Bath & Beyond, Blackberry. But one company stood out for the longevity of its rise and for the fervor of its fans, AMC, the movie theater chain. And the new investors who embraced the company, adopted a nickname for themselves, the apes. The name is a reference to The Planet of the Apes movies, about a band of primates that overthrows mankind.

Video: Apes win war. Apes together strong.

Ryan Knutson: One of those self-proclaimed ape investors was David Dumas. Tell me about your shirt.

David Dumas: So my shirt, this is a … It says on the front here, I’ve got Apes Together Strong, and then I’ve got on the sleeves, I’ve got Diamond Hands.

Ryan Knutson: Nice. David is an operations manager at a moving company. He lives in Colorado in an 1100 square foot home with his wife, three daughters, and a lot of pets.

David Dumas: So I’ve got four dogs. I’ve got three German shepherds and a little Jack Russell. I’ve got the three little girls. One of them’s got three cats. One of them’s got a bearded lizard. One of them’s got a fish.

Ryan Knutson: Wow.

David Dumas: And we’ve got a duck.

Ryan Knutson: That sounds like a full house.

David Dumas: It is a very full house. Nothing I could do about it. I just, I kept coming home and the wife and the kids would always have a new animal every day up to the point I said, “No more, absolutely until we get a bigger house.”

Ryan Knutson: But a bigger house doesn’t seem likely, not in the near-term anyway.

David Dumas: I’ve never really had money. I live paycheck to paycheck, which is probably the main reason why I got into investing.

Ryan Knutson: David got into investing early this year. And it was an exciting time to jump in. Everything seemed to be going up, including AMC. How much money did you put into AMC in the beginning?

David Dumas: $2,600 is what I have into AMC. The way that I did that was just through tips and the stimulus.

Ryan Knutson: Did you think that this investment might give you enough money that you could like pay off your mortgage or …

David Dumas: Absolutely. This investment was going to get my foot in the door. Absolutely. That was the … That’s how it made me feel. I was so convicted in this thing too, that I knew that this was going to be it, that this was going to be … Well, it’s going to help me secure my family’s future, right? The financial security part of it.
I figured that millions of us couldn’t be wrong. Right? That’s that was my … That was the whole thing. It was a gamble though. But again, I knew it was a gamble, but I was excited about it.

Ryan Knutson: And that gamble seemed to pay off. As millions of investors like David jumped in, AMC’s stock shot up from $2 at the start of the year to $20 in a matter of weeks. In June, it shot up even more to 60 bucks, then to 70 bucks. David says that at one point he was looking at over $10,000 in his investment account, more money than he’d ever seen in one place in his life. But he didn’t sell because for David and a lot of other apes, AMC had become about more than just the money. It was about reclaiming the markets for regular people.

David Dumas: I joined AMC in the beginning for the money. I can make a lot of money here real quick, which I could have. But no. I’m here for the movement.

Ryan Knutson: Now that ape movement owns AMC. And that’s big implications for the company and its leader.
Welcome to The Journal, our show about money, business, and power. I’m Ryan Knutson. It’s Thursday, December 23rd.
Coming up on the show, what happened when the apes took over AMC.
AMC didn’t start the year looking like the market’s next hot stock. The company’s earnings had been in decline for years, as more and more people started streaming movies at home. Our colleague, Erich Schwartzel, covers the movie business.

Erich Schwartzel: AMC was not doing well. It was losing money. Earnings were going down and attendance had really flat-lined for several years when it came to domestic movie going.

Ryan Knutson: And the pandemic made a bad situation worse. Across the country, AMC’s theaters were shuttered. And when they finally reopened, audiences were slow to come back. By the end of 2020 …

Erich Schwartzel: AMC is very quickly on the brink of bankruptcy.

Ryan Knutson: So when a horde of everyday investors calling themselves the apes started buying up a bunch of AMC stock, it was a financial lifeline. AMC’s CEO, Adam Aron was quick to embrace the movement.
Can you introduce us to Adam Aron?

Erich Schwartzel: Yeah. So Adam Aron has been CEO of AMC for several years. I’ve known him since he got the job. He is, on one hand, the polar opposite of an ape investor. He is a 67-year-old Harvard Business School graduate who has been a senior executive for much of his career. He on paper looks like the ultimate suit. But he is also surprisingly tailor-made for the meme era. He, even before the apes took over AMC, really had a showmanship quality to him and a tendency toward bombast that is unusual in the movie theater space. I mean, he was very well-known for having these earnings calls where he would quote Winston Churchill and talk about storming the beaches.

Adam Aron: We shall not flag or fail. We shall fight on the seas and oceans. We shall fight in the air. We shall defend our island. We shall fight on the beaches. We shall fight in the land …

Ryan Knutson: Adam Aron’s bombast turned out to be a good match for the apes. When they nicknamed him the Silverback, as in silverback gorilla, he donated $50,000 to a gorilla conservation fund. When they photoshopped his head under the poster of the ’80s movie Gorillas in the Mist, he shared the meme on his Twitter account. And when AMC stock took off last June, Aron milked it for all it was worth.

Speaker 6: AMC, the ultimate meme stock right now, shares up another 20% or so. Keep track.

Speaker 7: How about AMC? Wow. What whiplash you get on this one?

Speaker 8: AMC is now worth more than Delta Airlines, Best Buy, or State Street Bank.

Ryan Knutson: AMC stock doubled, tripled, then quintupled in value. Our colleague Alexander Gladstone has been covering AMC ever since the pandemic started and talking to Adam Aron. And he says it for Aron, the stocks dramatic rise seemed like the perfect moment for the company to raise money.

Alexander Gladstone: Because, keep in mind, throughout all this AMC had still been losing money in its daily operations. And so I think that for Adam Aron at the time, this was June, he was thinking, “We want to have as much money as we possibly can because we don’t know how long this pandemic is going to last. All we know is we want to get as much money on the balance sheet as possible for our company.” That was what his thinking was.

Ryan Knutson: To raise that money, AMC put almost all the stock it had available up for sale in June, 11 and a half million shares. But the company also added an unusual warning to potential buyers in its stock prospectus, which is kind of like the nutrition label on the back of a cereal box. AMC cautioned that the recent price swings in its stock seemed to be disconnected from what was actually going on with its business. And quote.

Alexander Gladstone: Under the circumstances, we caution you against investing in our stock unless you are prepared to incur the risk of losing all or a substantial portion of your investment.

Ryan Knutson: But it’s kind of like saying, “Buy this lettuce. It might have salmonella.” Like it’s a bizarre sales pitch.

Alexander Gladstone: Yeah. It’s sort of like saying this could be an extremely delicious lettuce. It could have salmonella. We should just warn you about that. So, I encourage you to exercise judgment when purchasing this item.

Ryan Knutson: Alex says that AMC likely included the disclaimer to stay on the right side of regulators.
So AMC offers these shares with this warning, with this stark warning. How did the stock sale go?

Alexander Gladstone: Extremely well. They sold the shares for about 50 bucks a pop and they netted close to $600 million.

Ryan Knutson: $600 million was a lot of money, and AMC had the apes to thank for it. But Alex says that while the apes giveth, they also taketh away.

Alexander Gladstone: What’s interesting is that the apes also foiled one of AMC’s most important moves as a company.

Ryan Knutson: By selling shares, AMC had been able to raise enough money to help get it through the pandemic. But Adam Aron wanted to raise more, because even with the sudden cash infusion, AMC was still in rough shape.

Alexander Gladstone: The issue for them is, even in the best case scenario that the pandemic totally recedes and is no longer an issue, even if they get back to where they were in 2019, they’d still be losing money. It’s hard to see a clear point in the future when people are just going to rush back into movie theaters the way they did before.

Ryan Knutson: Aron wanted to raise enough money to see AMC through that uncertain future. But there was a problem.

Alexander Gladstone: The problem was the company ran out of new shares to sell.

Ryan Knutson: To sell more shares and raise more money, AMC would need permission from shareholders, meaning permission from the apes.

Alexander Gladstone: So he came to his shareholders and said, hey, I have a proposal. Why don’t you guys let me issue 500 million more shares, which would double the share count. Like give me the permission to do that. And if so, I can raise a ton more money. It’ll put AMC in a much healthier place. But what’s interesting is, the apes, they didn’t want to do that. You know why? Because they didn’t want additional shares to dilute the value of the ones that they already owned.

Ryan Knutson: Flooding the market with up to 500 million new AMC shares would bring in money, but it would also decrease the value of the other shares that were already out there. In other words, all the apes that were holding AMC stock could lose money. So a lot of apes opposed the idea, including David.

David Dumas: At the time, I thought it was a horrible idea. We’re a skeptical bunch, right? We’re all these people that have been getting ran over for all of our lives, right? We jumped in, trying to get a chance of some life-changing money, right? And then now he’s asking for more shares.

Ryan Knutson: The apes pushed back. They messaged Adam Aron on Twitter, voicing their displeasure. And Aron backed off. He gave up on the idea. In August, Alex flew to AMC’s headquarters in Kansas to ask Aron how he felt about the fact that the apes had blocked his plan to raise more money.

Alexander Gladstone: His message to me was, I embraced the ape movement because these people were putting money into my company. Because of them, we armed ourself with $2 billion. Would I like to have $4 billion? Sure. But you can’t get everything you want sometimes. And the reality is we have new owners now, and any professional management team has to marry what they think is best for the company with what the owners think is best.

Adam Aron: I know what I thought. It was a very good idea. I think that amassing the larger war chest of equity is the right thing for this company. But it’s their company. It’s not my company. It’s their company. They own it.

Ryan Knutson: But it turned out that the share sale wasn’t the only thing AMC’s new owners had opinions about. Coming up. What happens when the apes run your earnings call?

Adam Aron: So the next question is will you accept Shiba Inu?

Ryan Knutson: That’s after the break.
In June, AMC made an announcement. 80% of its shares were now owned by retail investors, regular people. The apes had become AMC’s largest shareholders. Our colleague, Erich Schwartzel wanted to see what that meant. So last July, he flew out to Leawood, Kansas for AMC’s shareholder meeting.

Erich Schwartzel: I wanted to go because this was a phenomenon that was a largely online movement. It was happening on Reddit. It was happening on YouTube. But a shareholder meeting is a very IRL event. And so I wanted to see would this online phenomenon cross into real life? Would these apes actually show up for a shareholder meeting in person?
I went to the corporate headquarters, which is in a suburb of Kansas city, not far from a Panera bread and a multiplex. It is just like a deeply suburban location. And sure enough, about half an hour before the shareholder meeting was scheduled to start, some apes started showing up.

Ryan Knutson: Erich says they were pretty easy to spot. They were the only people not wearing business suits.

Erich Schwartzel: One guy came and took a photo with his cell phone of this, the road sign that said One AMC Way. Another came in an ape t-shirt. Yet another came with questions that he had crowdsourced from Reddit to ask during the shareholder meeting.

Ryan Knutson: The apes it turns out are very active shareholders and they have a lot of ideas about how AMC should be run. What ideas did they have for Adam Aron and how are they bringing him those ideas?

Erich Schwartzel: Oh my gosh, they have so many ideas for him. And to the point where like an earnings call now is just essentially an extended Q&A.

Adam Aron: Sean, let’s turn first to questions that were submitted to us from our shareholders.

Erich Schwartzel: They’re throwing out ideas is like, should AMC launch its own cryptocurrency, should AMC accept this form of Bitcoin? Should AMC get into NFTs?

Adam Aron: What are the opportunities for AMC with respect to NFTs? Will AMC offer eSports and gaming in the theaters?

Erich Schwartzel: Should AMC make its own movies? On the last earnings call Ryan, there were several questions from ape shareholders, and then there was time for one from a Wall Street analyst.

Ryan Knutson: How is Adam Aron responding to all this feedback? Is he taking their suggestions?

Erich Schwartzel: Very much. Very much. I mean, especially when it comes to things like crypto, he’s already said that AMC is going to look into launching its own cryptocurrency and is updating its payment systems to accept Bitcoin.

Adam Aron: And we are on track right now to accept, as we promised Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and others prior to year end.

Ryan Knutson: Do the apes and Adam Aron have the same agenda for AMC, or do they have differing visions for what the company should be and what it should do?

Erich Schwartzel: It’s really hard to say. I think Adam Aron is trying to balance marrying what he thinks is best for the company, with what the apes think is best for the company. He’s running a business that has a really fundamental issue right now, which is that it’s very hard to get butts in seats. And that is really what is going to sustain a company like AMC, way more than these kind of extracurricular ideas that the apes have.

Ryan Knutson: But for a lot of the apes, their investment in AMC is about more than just extracurricular ideas for how to run the company. For many it’s a social movement.

Erich Schwartzel: I really was struck by how many seem to be viewing AMC as a vehicle for much larger concerns. There were so many apes I would speak to who would say, this is actually about 2008, this is about the recession and the bailout and people like me who work 40 hours or more than 40 hours a week not getting a fair shake. And it seemed like the meme stock phenomenon and AMC in particular became this unlikely outlet for a lot of rage and despair.

Ryan Knutson: One of the ways that’s manifested is through a deep skepticism of how the stock market works. And at times the skepticism has boiled over into conspiracy. For example, many apes believe that there are hundreds of millions of fake AMC shares in circulation or synthetic shares. And that those shares were created by hedge funds to bring down the stock. Here’s Alex.

Alexander Gladstone: This conspiracy sort of really caught fire. And if you look on YouTube, there’s actually dozens of videos now about AMC synthetic shares.

Ryan Knutson: One of the leading proponents of this theory is a YouTuber named Trey Collins.

Trey Collins: Good morning fandom.

Ryan Knutson: In his YouTube videos, Collins talks up AMC stock, exhorts his fellow apes to hold, and explains how synthetic shares are hurting AMC.

Trey Collins: So I want to walk you through actually this whole process, how bad and how out of hand this really is, and then we leave you with-

Ryan Knutson: The conspiracy theory goes like this. Hedge funds have been flooding the market with fake AMC shares. And by increasing the supply of shares, they dilute their value. The result, the theory goes is that AMC shares are actually worth more than they look on paper.

Trey Collins: They cannot continuously create synthetic shares, fail-to-delivers and naked short the stock, malpractice, corrupt and try to destroy AMC’s company forever because it will-

Ryan Knutson: The problem, according to government regulators is that there’s no evidence for synthetic shares.

Alexander Gladstone: I spoke to a number of government regulators, people at the Depository Trust Corporation, which is the main clearing house for all companies registered with the Securities and Exchange Commission as AMC is and with FINRA, which is the Financial Industry Regulatory Authority. And they said that there is no evidence for this conspiracy and that it actually doesn’t make any sense. There’s no such thing as synthetic shares. It just doesn’t exist.

Ryan Knutson: Alex also spoke to Trey and asked him to provide evidence for his claims of about synthetic shares. He did not. But Collins is popular with the apes. And also with Adam Aron. Aron’s been on his YouTube show a handful of times.

Adam Aron: Well, Trey, hello to you, hello to your subscribers. You know, what you said about this being groundbreaking? My hat’s off to you.

Alexander Gladstone: It’s just sort of an unusual situation. And the fact that also Adam Aron, he’s appeared on Trey’s show a number of times, but then he, on the other side, he’s also had to swat down some of the conspiracies. It just sort of goes to show it’s a very unusual situation for a public American company.

Ryan Knutson: While Aron has appeared on Trey’s channel, he also tweeted in July, “As to the existence of so-called fake or synthetic shares or the naked short selling of AMC shares, we are unaware of any information validating these theories.”
The apes have helped AMC raise a lot of money, over $2 billion. But the fundamentals of AMC’s business haven’t changed. The pandemic isn’t over. Audiences continue to stream movies at home, and AMC is still spending way more money than it’s making. The company lost $200 million just last quarter. Amid all that some shareholders have started selling. Among them are some of AMC’s own executives.

Alexander Gladstone: One of the key ironies is that the ape movement, their mantra is buy and hold. But in the middle of all that, AMC executives, they’ve sold over $80 million worth of AMC shares this year. The people who are most familiar with the company and its business and its future prospects have been cashing out.

Ryan Knutson: That includes Adam Aron. This year he sold at least $35 million worth of stock. What does Adam Aron say about why he’s selling shares?

Alexander Gladstone: He said, “Hey, listen, I’m 67-year-years old …

Adam Aron: A youthful, vibrant, vigorous, full of life 67, I might add, but 67, nonetheless.

Alexander Gladstone: It’s time to diversify my assets.

Adam Aron: Prudent estate planning suggests I should diversify my assets a bit.

Alexander Gladstone: He said, people will try to spread fear, uncertainty, and doubt about this, but still, be assured that I’m very committed to AMC. And it’s true. He still will own about $2 million of shares.

Adam Aron: I have an enormous personal stake in the future of our company, of your company, of AMC Entertainment.

Ryan Knutson: As for that diehard ape, David Dumas, he doesn’t mind that Aron, the Silverback is at least partially cashing out, even as he continues to hold.

David Dumas: I know a lot of people are upset that he sold shares and whatnot. But you know what, man? How old’s the guy? I mean, like Merry Christmas, man. Our gift to you. That’s my opinion on that anyways.

Ryan Knutson: How do you feel about how he’s run the company?

David Dumas: Well, to be completely honest with you, I feel like he’s doing a great job. He used things to his advantage, right? At the beginning, all of us weren’t necessarily getting into AMC because we liked AMC. What Adam did is he kept people here. He came in, saw an opportunity, connected and started listening to what people were saying. And he brought the movies back, so.

Ryan Knutson: David’s faith in Aron is one reason he’s not selling. And despite AMC’s slumping share price, he expects his fellow apes will hold too.

David Dumas: We’re all still here. We’re not leaving. And we’re still buying and holding and we’re waiting for this to play out because it’s going to.

Ryan Knutson: That’s all for today Thursday, December 23rd. The Journal is a co-production of Gimlet and the Wall Street Journal. Your hosts are Kate Linebaugh and me, Ryan Knutson. The show’s produced by Annie Baxter, Katherine Brewer, Akedi Foster-Keys, Pia Gadkari, Rachel Humphreys, Matt Kwong, Annie Minoff, Laura Morris, Afeef Nessouli, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinoza, Willa Rubin, Kayla Stokes and Annie-Rose Strasser.
Our engineers are Griffin Tanner and Nathan Singhapok. Our theme music is by So Wylie. Additional music this week from Catherine Anderson, Emma Munger, So Wylie and Blue Dot Sessions. Fact checking by Nicole Pasulka and Adam (inaudible). This is our last new episode of 2021. On behalf of everyone here at The Journal team, I want to wish you a safe and happy holiday season. Thank you so much for listening this year. We’ll be back again in 2022.