AMC Stock Sale Raises $587 Million as Meme Traders Buy Shares

It was a conflicted sales pitch: We’re selling new shares of stock, but don’t buy them unless you can afford to lose all your money. Also, free popcorn.

AMC Entertainment Holdings, the beleaguered theater chain that made the pitch, sold over half a billion dollars in new shares on Thursday in a matter of hours. It was the latest sign that the company, which was on the verge of bankruptcy months ago, is embracing its status as a meme stock — the label for a group of wildly volatile stocks that have become favorites of small traders who loosely organize online to push up the price.

And in doing so, AMC was rushing to collect the cash that investors are throwing at it, all while admitting that its surging market price had little to do with the state of its actual business.

“We believe that recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business,” AMC said in its pitch to investors. The company cautioned against buying the shares unless investors were willing to risk “losing all or a substantial portion of your investment.”

Investors ignored such warnings and snapped up the new offering in just four hours, netting AMC $587 million.

“This strengthens AMC,” Adam Aron, the chief executive, wrote on Twitter after the sale. “It improves our balance sheet and provides flexibility both to address possible challenges and to capitalize on attractive opportunities.”

The bullishness was notable for a company that had been on a rocky path even before the pandemic forced movie theaters to shut down. AMC has had to contend with a dwindling audience as Netflix and other streamers continue to attract new subscribers. AMC lost $149 million in 2019. The last time it turned a profit was in the second quarter of that year. The business still has $5.4 billion in long-term debt and $5 billion in long-term leases.

But in their willingness to ignore the fundamentals and stay bullish on brand names such as AMC, these meme-stock traders are changing the range of possibilities available to such struggling firms. Some of these investors also see their actions as a way to stick it to hedge funds that they think may be betting against the companies.

In something of a sequel to the GameStop mania that gripped the markets in late January, the stock price of AMC has gone nearly vertical lately. Retail investors who frequent digital discussion boards like Reddit’s Wall Street Bets have focused their collective financial firepower in an effort to lift the share prices of a few favorite companies. This time AMC, which emerged with BlackBerry as a somewhat secondary meme stock in January, appears to be the main beneficiary.

AMC doubled in value last week, rose 23 percent on Tuesday and exploded by an additional 95 percent on Wednesday, leaving it up more than 500 percent over the last month. By the close of trading on Wednesday, AMC’s market value of more than $30 billion put it in roughly the same class as companies like Best Buy, Tyson Foods and the stock market operator Nasdaq.

The company has moved to quickly capitalize on those gains, embarking on a flurry of share sales that allowed AMC to raise more than $1.2 billion just this quarter, including Thursday’s offering. (Remember, a rise in share price benefits a company only if it can sell new shares in exchange for cash that it can then use for business purposes.)

On Tuesday, AMC sold 8.5 million shares for roughly $230 million to the hedge fund Mudrick Capital, which quickly flipped them for a profit.

According to the company, more than three million individual investors hold about 80 percent of AMC’s shares, making the company something of a people’s stock. On Wednesday, AMC announced a new effort to correspond with shareholders through AMC Investor Connect, a newsletter that will also offer perks.

“We intend to communicate often with these investors, and from time to time provide them with special benefits at our theaters,” Mr. Aron said. “We start with a free large popcorn on us, when they attend their first movie at an AMC theater this summer.”

The gesture was appreciated.

“I’m keeping my shares,” one commenter wrote on WallStreetBets. “I like popcorn.”

The stock rocketed higher throughout Wednesday, on enormous trading volume that prompted four trading halts that afternoon. When all was said and done, AMC was one of the world’s most heavily traded stocks, with nearly $40 billion worth of buying and selling, a trading pace that dwarfed that of corporate giants like Tesla, Apple and Amazon, according to Bloomberg data.

Investors gave back some of those gains on Thursday after AMC announced that it would sell 11.55 million new shares. Although investors bought all the stock, AMC shares collapsed 18 percent, closing at $51.34.

AMC’s stock prospectus published on Thursday contained a clear notice of caution, warning would-be buyers that the extreme volatility in its stock could cause buyers “to incur substantial losses.”

Analysts said such a frank statement of the risks was necessary given the behavior of the shares in recent days.

“Stocks don’t double because of free popcorn every day,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. “If you’re issuing stock the day after that, then, yes, you have to warn in the prospectus that this could happen.”

AMC shares retained a substantial portion of that popcorn premium, a testament to the unusual durability and dedication, or disdain for business fundamentals, of some of the investors who have been attracted to meme stocks.

“It’s an example of capital markets functioning, to a certain extent. You get a huge base of support, and it lets you raise money at a great valuation,” said Dave Lauer, chief executive of Urvin.ai, a big data analytics firm, and an expert on the structure of the stock market. “Suddenly you’re a viable business again. It’s a virtuous cycle.”