AMC Stock Split 2022: Will the Stock Go Up?
AMC Stock Split 2022: An Overview
With social media becoming an indispensable part of our daily lives, the wave of stocks under the “meme stocks” category has risen over the past years. AMC Entertainment, quite true to its name has been some sort of entertainment for investors. Beginning 2021 with around USD 2 per share, the stock had gained about 36 times to touch USD 72 in the month of June in the same year. With an ardent investor base, who proudly call themselves “apes” AMC Entertainment is in the news once again; this time, it's for a “stock split”.
Why did we place stock split under quotes? Read on and you’ll know.
What is AMC stock split all about?
Before we begin, there are a couple of things you should know. As per a company’s memorandum of association or the charter in simple terms, companies are allowed to issue shares only upto a certain limit as defined by its authorized capital. The pandemic ushered in a huge behavioral change among people. (Remember Disney’s Black Widow had more revenues coming from the streaming platform than theatres) The otherwise frequent moviegoers were now forced to watch their favorite movies on streaming platforms available at their homes. Naturally, this had caused trouble for companies like AMC Entertainment that rely on people watching movies in theatres.
Now back to the authorized capital. AMC Entertainment was dealing with a massive cash crunch and was in dire need of funds. There were even rumors of the firm filing for bankruptcy. To tackle this head-on, the company started issuing a large number of equity shares to pay its debts. Moreso, at that time, AMC Entertainment was fanned by the meme stock craze which had helped it raise money easily. The company ended up raising a lot of cash in that manner and has now exhausted the limit to raise capital through equity shares. Hence, this “stock split”.
What is a stock split?
When a firm’s share price rises to a certain point where it becomes very expensive for investors to purchase shares, it might decide to split its stocks in order to make it more affordable. A stock split further improves the overall liquidity of the stock as more individuals will now be able to buy the same share at a much lower price.
We have explained in detail the reason behind companies splitting their stocks in one of our lessons in IND Classroom. You can read that here.
AMC Stock Split History
AMC Entertainment hasn’t split its shares since its listing on 18th December 2013.
AMC Stock Split 2022: What is the ratio?
The company unveiled its plan to issue a special dividend on August 4th after which the shares have been rallying close to 30% since then. But wait, didn’t we mention stock split?
As per the company, it is going to issue a special dividend to its shareholders today (19th August 2022). So it goes like this.
Existing shareholders of the stock AMC Entertainment Holdings Inc-Class A (AMC) shall receive an extra preferred equity share that shall trade with the ticker name “APE” from Monday onwards. It is somewhat like a stock split in the ratio of 2-for-1. Shareholders holding one equity share in AMC Entertainment as of today shall receive an extra preference share and hence the company prefers to call it AMC Preferred Equity Share (APE).
This is why we had placed stock split in quotes. It is not a usual stock split nor is it a usual cash dividend.
As you might have found out by connecting the dots, the company is essentially looking for ways to raise capital in order to manage its finances in the near term.
AMC Stock Split: Why is AMC splitting its stocks?
We had just mentioned that the pandemic had almost rendered the firm bankrupt, taking a cue from there, as per its recent reports, AMC Entertainment has an outstanding debt of about USD 5.4 billion with USD 1.2 billion in cash. Ergo, by issuing extra preference shares the firm looks to become financially flexible as it still requires more cash to survive. By issuing more of these preference shares, the company can raise the capital required to pay off its debts in the future.
AMC Stock Split 2022: What are the implications of AMC stock split?
Throughout this blog, we have tried to get this point across that the AMC Entertainment stock split is different from usual stock splits. So as we had mentioned earlier, the stock split is of the ratio of 2-for-1 which in common parlance implies that the share price shall be halved right? No. In this case, unlike usual stock splits, the value of the share is not going to be halved. Instead, if you own 1 share of AMC Entertainment stock, you shall receive another share which shall be a preferred share. Basically, if the share price at the end of today was USD 20 and (say) you own one share. The stock with the ticker name “AMC” shall now be valued at USD 19 ( instead of USD 20 earlier) and the extra preferred share by the ticker name “APE” shall be valued at USD 1. That’s it!
AMC Stock Split 2022: Will AMC stock go up?
In plain simple terms, a stock split does not affect any change in the price of shares. Whatever the value of the share price, it shall be split in that ratio. But if you look at the rationale behind AMC Entertainment, you might figure out their plan. Investors, in general, have been upbeat about various tech companies splitting their share prices. In fact, Tesla is all set to split its share price in the ratio of 3-for-1 next week. You can read more about it in our blog here.
It is this upbeat trend that the company looks to cash on by announcing a stock split. (which by now you would have understood that it is not)
Given all the above facts, it is at your discretion to judge whether the stock split shall make the share prices go up or not.
But for your purview here are some financial details of AMC Entertainment:
- AMC Entertainment reported a drop in net loss to USD 121.6 million compared to USD 344 million a year earlier.
- The EBITDA came at USD 107 million, up by about USD 258 million in the year-ago quarter.
- The number of people who watched movies in AMC theatres rose 168% compared to the same period last year.
- A total of 59 million attended AMC’s theatres compared to 97 million in 2019 raising concerns regarding the competition from streaming services.
- The company however looks to cash on certain big releases that are lined up in the coming months including James Cameron’s Avatar 2: The Way of Water and Marvel’s Black Panther 2: Wakanda Forever.
Has AMC Entertainment ever done a stock split?
No. Since its listing on the stock exchange on 18th December 2013, AMC Entertainment has not done a single stock split to date.
Can AMC still squeeze?
There was a hashtag on Twitter that went #AMCSQUEEZE. However, according to the available data, since the announcement of the special dividend or the stock split, whichever way you prefer to refer to, those who had bet against the stock have lost close to USD 500 million.
What is AMC APE?
AMC APE or AMC Preferred Equity is the ticker name that shall start trading from August 22, 2022, onwards after the stock split of AMC Entertainment. Investors with 1 share of AMC stock shall receive another share of APE stock.