Chronicle - May 17, 2024
Meme Creativity: How Corporates Leverage Viral Trends
Early this week, GameStop GME 0.00%↑ (GME) and AMC Entertainment AMC 0.00%↑ (AMC) stock almost doubled in a day after Keith Gill, famously known as Roaring Kitty, posted a meme showing a gamer sitting up straight and intensely focusing on his screen. This seemingly simple and humorous post reignited the enthusiasm of those who remember the 2021 GME era.
In 2021, Keith Gill, active on Reddit as DeepFuckingValue (you can guess his investment style) and on YouTube as RoaringKitty, gained widespread attention for his detailed analysis and bullish insights about GME. Gill's investment in GME, initially around $53,000, turned into millions of dollars as the stock was short squeezed. His influence grew significantly as many people were staying at home during the COVID-19 pandemic, leading to a surge in retail trading and online investing communities. Stock influencers like Gill were able to gather massive followings and impact stock prices through social media. The fact that institutional investors heavily shorted GME set the stage for the short squeeze because coordinated buying by retail investors forced short sellers to cover their positions, driving the stock price even higher.
However, Gill had never talked about AMC as much as he talked about GME. AMC rose in 2021 because it shared characteristics with GME, including being a struggling business with a sizable retail investor base and receiving a lot of institutional short selling.
Currently, about 18% of AMC shares are shorted, the highest level since 2021. The company is still struggling, with ongoing losses and a debt-ridden balance sheet. However, AMC's CEO, Adam Aron, is known for his swift and proactive engagement with retail investors.
When its stock soared in June 2021 because of the GME effect, AMC issued 11.55 million shares; that’s about half of its outstanding shares at that time, at $50.85 per share. The equity offering continued, and by the end of 2021, AMC share outstanding stood at 54.11 million shares, an increase from the June 30, 2021 level of 32.34 million shares.
Also recall that when AMC's share price slumped after its tremendous surge in August 2021, the company announced it would accept cryptocurrency payments in its theater chain. At the time, cryptocurrency was gaining significant popularity, and this strategic move led to a 50% increase in AMC's stock in the days following the announcement.
Last Tuesday, following the 2021 playbook, Mr. Aron swiftly capitalized on the momentum generated by Keith Gill's return. As AMC's stock surged on Monday, the company quickly entered into an agreement for a debt-to-equity swap. In this agreement, AMC swaps its $164 million of “10%/12% Cash/PIK Toggle Second Lien Subordinated Notes due 2026” for 23.3 million new shares, or about 12% of outstanding shares.
There are two things to note here. First, businesses with liquidity issues are typically the ones to issue exotic notes. These notes have a 10% cash-payment coupon but can be switched to 12% notes if AMC struggles to pay the coupon in cash. The 'toggle' feature means AMC can switch back and forth between cash payments and note payments. The'second lien subordinated notes' indicate that noteholders have a second-priority claim on AMC’s assets.
Second, by issuing 23.3 million new shares, AMC effectively sold its shares at $7.33 per share. The meme-triggered rally started on Monday and peaked at $11.88 on Tuesday. By Thursday, AMC's share price had closed at $4.64. Good job, Mr. Aron!
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CCIXU 0.00%↑ Churchill Capital Corp IX/Cayman, a special purpose acquisition company (SPAC), is incorporated as an exempted company in the Cayman Islands.
NNE 0.00%↑ Nano Nuclear Energy Inc. is an emerging company in the nuclear energy sector, focused on creating smaller, more affordable, and safer advanced portable clean energy solutions.
SVCO 0.00%↑ Silvaco Group, Inc. is a provider of technology computer-aided design software, electronic design automation software, and semiconductor intellectual property.
PAL 0.00%↑ Proficient Auto Logistics, Inc. is a prominent non-union specialized freight company dedicated to offering auto transportation and logistics services.
GPATU 0.00%↑ GP-Act III Acquisition Corp. is a blank check company established as an exempted company in the Cayman Islands.
ZK 0.00%↑ ZEEKR Intelligent Technology Holding Ltd is a rapidly expanding battery electric vehicle (BEV) technology company.
BTOC 0.00%↑ Armlogi Holding Corp. is a rapidly expanding U.S.-based warehousing and logistics service provider, offering a comprehensive range of supply-chain solutions including warehouse management and order fulfillment.
JDZG 0.00%↑ JIADE Ltd specializes in offering comprehensive one-stop education support services to adult education institutions.
RAY 0.00%↑ Raytech Holding Ltd is involved in sourcing and wholesaling personal care electrical appliances for international brand owners.
IPO — Performance
