‘Meme stock’ darling AMC Entertainment Holdings (NYSE:AMC) tumbled 40% yesterday as competitor Cineworld Group PLC (LSE:CINE) confirmed it is considering filing for bankruptcy.
The stock fell to US$10.46, as Cineworld’s potential demise spells bad news for an industry that is already struggling to recover from the pandemic and compete with online streaming services.
“Covid meant that cinemas were closed for many months, Hollywood was unable to churn out hits and consumer preferences shifted towards streaming instead, which has caused lasting damage for ticket demand even after movie theatres reopened,” said Victoria Scholar, head of investment at interactive investor.
“On top of that, Sky for example now releases new blockbusters at the same time as the cinemas, again reducing the incentive to leave the house and organise a cinema trip.”
Meme stocks
Meme stocks gained popularity last year when a group of traders, mainly through threads on social media site Reddit, decided to invest in the shares to push the prices higher, with AMC hitting a high of US$59.26 last June.
Other stocks, like Bed, Bath and Beyond, Blackberry (TSX:BB) and Gamestop, experienced a similar bounce as investors traded largely on social media hype rather than any economic fundamentals.
AMC shares were in fact on the climb once again until Cineworld’s problems and its own weak third-quarter report sent shares tumbling.
AMC looked to cash in on that small hype, issuing preferred shares that were listed on Monday, potentially allowing it to sell billions of dollars worth of shares without requiring shareholder approval.
The shares were issued as a sort of one-off dividend to current holders of the stock that have voting power and the right to a dividend.
Essentially, it looked to raise money to help pay down any debt and carry out acquisitions and investments.
The shares, trading as APE, closed the day at US$6, while holders were also given a free ‘I OWN APE’ non-fungible token.