Retail rebound
But it’s a brave new world for the company embracing its extremely online investors: The movie theater chain is now acting like a wholly-owned subsidiary of its own meme. Aron said last month that AMC has 4.1 million individual investors, who own up more than 80% of AMC shares, and the average investor owns 120 shares. It’s highly unusual for any public company to have so much of its stock in the hands of retail investors. “I’m shocked,” said Kevin Mullally, a finance professor at the University of Central Florida. “That is not normal.”
With this growing investment comes growing influence. Mullally said that AMC likely pulled the shareholder vote because it didn’t have enough votes to win, or perhaps they want to appease the meme traders behind their success. For AMC that’s likely to be one and the same.
This trend only seems to be strengthening. The emergence of the trading app Robinhood, meme stocks, and a bull market have made 2021 the year of the retail investor. JPMorgan Chase predicts retail investors will pour a record $1 trillion into stocks this year, doubling an earlier estimate from December. And that was before WallStreetBets began making front-page headlines by sending GameStop’s stock skyward.
This army of activist investors is now waiting to execute another short squeeze. Posters on Reddit’s r/WallStreetBets and r/AMCStock are lobbying AMC to stop issuing new stock to increase their leverage over any short inventors (since new shares could dilute their leverage). Once some shorts start buying back shares, that can have a cascading effect where the price climbs and more shorts need to buy more shares to cover their position, pushing the price higher still.
“The only way [the shorts] cover is if people sell their shares,” said Reddit user Tynore on Wednesday morning, July 7, urging fellow traders to hold. “We own the float. We set the price. Current price doesn’t matter.” (The float is the total number of shares available for trading.)
Aron is clearly listening and speaking directly to the concerns of his Reddit investors. “These individual investors likely own a majority of our shares,” he said during AMC’s earnings call in June. “They own AMC. We work for them. I work for them.”
When Aron decided to withdraw the stock issuance vote, the AMCStock subreddit applauded the decision. Bullish retail investors on Reddit forums, who call themselves “apes,” call CEO Adam Aron their “silverback” (the name for a dominant male gorilla). “For any apes that did not believe in our silverback or questioned his loyalty i think all those have been answered and there is absolutely no reason to doubt AA..,” wrote Reddit user 1Goalie29. “AMC as a company..onward and upward ..AMC APES TOGETHER STRONG ?? ??”
What’s ahead for AMC
Reddit investors’ strategy is now to wait, but Aron wants to grow AMC. For that, he needs capital. The CEO is eyeing acquisition targets including ArcLight and Pacific theaters, paying off corporate debt, showing live events like UFC fights, and offering an investor program with complimentary popcorn as it raises more money.
Conventional wisdom dictates AMC and its investors should all want the company to issue more shares, but meme traders’ strategy — forcing another short squeeze against Wall Street investors through collective action — is blocking the CEO’s ability to fundraise. Even if meme traders understand the company is overvalued, most don’t seem to believe that the price will drop anytime soon. “In the short term, issuing shares makes it harder for Reddit and other meme traders to coordinate the short squeeze,” Shue said. “They’re not worried about the bubble popping and, in that case, there’s no strong reason to issue shares.”
But AMC’s stock price is slipping, down 20% in the last five days of trading, and meme traders are urging fellow investors to “hold the line” and “buy the dip.”
And it’s unclear if there will be a short squeeze on the horizon. As of June, about 20% of shares available to the public are being shorted. While that has been rising since February, it’s down from a peak of 24% in January and nowhere near the 102% short interest in GameStop in early January that catalyzed WallStreetBets’ notorious short squeeze. Mullally at the University of Central Florida doubts traditional short investors — wary of another GameStop saga — would try the same maneuver given the fate of Melvin Capital. After its tumultuous short squeeze, the hedge fund lost 49% on its investments during the first three months of 2021, Reuters reported.
Today, short-sellers fearful of meme mania realize they are outnumbered by coordinated retail investors. “Just like with GameStop, the retail guys can keep buying the stock and thus push up the price,” said Mullally. “There are so few available shares for the shorters to buy that they simply won’t take the risk of getting squeezed again.”
