Excellent breakdown and what APE actually means and how it can create more financial stability for AMC. Reading your article gave me the feeling I had a better understanding what was happening….not just Twitter banter. Again, I feel because of the work you do I have a greater grasp of general knowledge in the financial world
While on the topic of 'meme' stocks. I'd love to see your analysis on the GME saga.
Is is true that DTCC incorrectly processed the dividend split? What effect will the DRS movement have on the stock? Are the hedge funds holding more shorts than publicly reported? Are the massive number of FTD's an indicator of manipulation? How will a community of 815,000 on reddit affect the stock. Is the NFT marketplace the way of the future?
thanks for sharing and writing this. but i am confused, isnt amc/ape split similar to tesla stock split? so there is no additional cash infusion to the company. unless on top of the split, amc is selling additional ape shares to institutions and public to pay down debt?
Thank you for the debt to equity valuations analysis! Very insightful and indeed $APEs seem a good move to ensure survival.
Let me offer an alternative explanation for AMC price moves, please look into it yourself too:
AMC was never a true meme stock. AMCX was part of the basket short that got squeezed in Jan of 21. AMC was not mentioned in social media once until weeks after the meme squeeze. The theory here is that AMC was taken as hedge (by short sellers) for the basket shorts to distract from AMCX. It then caught on.
AMC fully diluted their authorized shares to bail out underwater shortsellers, at which point it ran up a few times to help with collateral on the hedge.
Why would any of this be true? Well your analysis exposes it as so, no other meme stock is equity rich like AMC is, even though other meme stocks have gigantically higher followings, case in point GME.
100% agree. Any idea as to why the company couldn't just obtain shareholder approval to amend the charter and increase authorized shares? It's the shareholders who are supporting this company, after all. Perhaps management didn't have enough confidence in this approach, or thought $APE might produce better optics?
Great writeup, thank you. Question, is there any mention of the $APE crypto currency from AMC? Another vibrant community, similar in some ways. Have to think Aron is angling for some sort or partnership, right?
I'm so lost here. If that's the case and we take this to the logical next step could AMC pay off it's debt, take on additional debt and then issue more APE shares to pay that new debt down all the while continuing to increase the share price as it's increasing shareholder value? Is this a fountain of wealth?
I don't want to put words in Bear's mouth, but I don't think this necessarily follows.
My summary is: without share dilution as a means to get "cheap credit", the company is on the verge of bankruptcy (from their preexisting debt mountain). In that case shares go to zero (ish). With share dilution and cheap credit $AMC can get off the tracks.
At some point you no longer get free money from shareholders though. This move didn't break physics or anything. It's tactics at an attempt for survival, and relies entirely on shareholders "complacency". At some point if you dilute enough, even the true believers sell.
This was a great summary! Only part I take slight issue with is the last line. I don’t think dilution is the “problem” - as I argue here, issuing equity to repay debt is accretive to shareholders in this case. The greater risk is simply that the current valuation is very high and may revert regardless of whether they issue new equity
Appreciate the follow up John. Yeah the last paragraph in your comment is what's bizarre to me. It seems like shareholders demand for the stock goes up the more dilution you get, you look at the stock right now it's skyrocketing.
It's going from "dead" to "on life-support", so that's an improvement! I'm not sure if the $APEs see it that way or not, but yeah — can't go on forever.
Cost of living is rising everywhere in the world and the rise is also very pronounced in essential goods. As I see it, this should make fewer dollars available for the marginal retail investor to invest in publicly traded companies.
Without having done any due diligence my intuition tells me that there must be a proportion of the reddit crowd that own a piece of AMC, which:
a) Will have fewer additional dollars to invest moving forward
b) And/or are in financial risk due expensive debt (thinking about credit cards).
This proportion could be forced to liquidate their existing positions therefore putting additional downward pressure to the company's stock. From a psychological point of view, other retail investors that do not realize that the stock can (under certain circumstances) go to zero, could see the stock price and think "oh, this is 30% lower than before, this is an opportunity". This could increase their appetite in the short term but eventually, my intuition tells me that liquidity draining around the world makes gravity quite strong to beat.
The LTM free cash flow is around -851 mUSD.
Assuming that the company would raise 0 USD from $APE, the company could still finance its operations for about a year with existing cash (~950 mUSD). In case it chose to issue more debt, that would extend its lifetime but it would put it in a certain "death" trajectory.
Assuming that the company can indeed raise equity via $APE an interesting thought experiment is to answer the following:
"How much is the yearly need for equity raised to extend its lifetime by 1, 2, 3, 4 (and so on..) years, assuming LTM cash burn?"
In theory if they could survive the next couple of years and if their product is still relevant to the masses (a big if - competition from alternative products is quite obvious), the could see light in the tunnel.
One should also obviously not ignore perverse upper management incentives. I can't, as I suppose a lot of others, help but thing about the massive wealth transfer that occurs when a CFO sells 91% (hope my numbers are right) of their shares just when the stock pops.
Just a few unstructured thoughts by someone new in the world of investing.
Thanks for the great content you put out there for us Bear!!
It is indeed a fountain of wealth but a limited one - it can remove the need for interest payments and risk of bankruptcy. The above example assumes that the share price holds steady despite dilution and the benefits of dilution stop once the debt has been paid off or the equity becomes more expensive than the debt.
Well done! Thank you for sharing and writing this!
Excellent breakdown and what APE actually means and how it can create more financial stability for AMC. Reading your article gave me the feeling I had a better understanding what was happening….not just Twitter banter. Again, I feel because of the work you do I have a greater grasp of general knowledge in the financial world
Thank you so much for the kind words!
Another fantastic article. Super appreciate these.
Thank you! I will try to keep them coming
While on the topic of 'meme' stocks. I'd love to see your analysis on the GME saga.
Is is true that DTCC incorrectly processed the dividend split? What effect will the DRS movement have on the stock? Are the hedge funds holding more shorts than publicly reported? Are the massive number of FTD's an indicator of manipulation? How will a community of 815,000 on reddit affect the stock. Is the NFT marketplace the way of the future?
Maybe for a future post! Regarding the last question - my guess is no.
Wow.. thank you for your response! I've thoroughly enjoyed your content to date and I'll be looking out for a post on the above! :)
thanks for sharing and writing this. but i am confused, isnt amc/ape split similar to tesla stock split? so there is no additional cash infusion to the company. unless on top of the split, amc is selling additional ape shares to institutions and public to pay down debt?
Thank you for the debt to equity valuations analysis! Very insightful and indeed $APEs seem a good move to ensure survival.
Let me offer an alternative explanation for AMC price moves, please look into it yourself too:
AMC was never a true meme stock. AMCX was part of the basket short that got squeezed in Jan of 21. AMC was not mentioned in social media once until weeks after the meme squeeze. The theory here is that AMC was taken as hedge (by short sellers) for the basket shorts to distract from AMCX. It then caught on.
AMC fully diluted their authorized shares to bail out underwater shortsellers, at which point it ran up a few times to help with collateral on the hedge.
Why would any of this be true? Well your analysis exposes it as so, no other meme stock is equity rich like AMC is, even though other meme stocks have gigantically higher followings, case in point GME.
100% agree. Any idea as to why the company couldn't just obtain shareholder approval to amend the charter and increase authorized shares? It's the shareholders who are supporting this company, after all. Perhaps management didn't have enough confidence in this approach, or thought $APE might produce better optics?
Great writeup, thank you. Question, is there any mention of the $APE crypto currency from AMC? Another vibrant community, similar in some ways. Have to think Aron is angling for some sort or partnership, right?
Unfortunately not my area of expertise! Haven’t heard anything about this
Very good article!
Please write more like these.
Very informative and easy to read.
I also like how you try to be impartial as much as possible.
Thank you for the feedback! I will certainly write more like these!
Scorpion and the frog.
I'm so lost here. If that's the case and we take this to the logical next step could AMC pay off it's debt, take on additional debt and then issue more APE shares to pay that new debt down all the while continuing to increase the share price as it's increasing shareholder value? Is this a fountain of wealth?
I don't want to put words in Bear's mouth, but I don't think this necessarily follows.
My summary is: without share dilution as a means to get "cheap credit", the company is on the verge of bankruptcy (from their preexisting debt mountain). In that case shares go to zero (ish). With share dilution and cheap credit $AMC can get off the tracks.
At some point you no longer get free money from shareholders though. This move didn't break physics or anything. It's tactics at an attempt for survival, and relies entirely on shareholders "complacency". At some point if you dilute enough, even the true believers sell.
This was a great summary! Only part I take slight issue with is the last line. I don’t think dilution is the “problem” - as I argue here, issuing equity to repay debt is accretive to shareholders in this case. The greater risk is simply that the current valuation is very high and may revert regardless of whether they issue new equity
Appreciate the follow up John. Yeah the last paragraph in your comment is what's bizarre to me. It seems like shareholders demand for the stock goes up the more dilution you get, you look at the stock right now it's skyrocketing.
Skyrocketing... for now.
It's going from "dead" to "on life-support", so that's an improvement! I'm not sure if the $APEs see it that way or not, but yeah — can't go on forever.
Cost of living is rising everywhere in the world and the rise is also very pronounced in essential goods. As I see it, this should make fewer dollars available for the marginal retail investor to invest in publicly traded companies.
Without having done any due diligence my intuition tells me that there must be a proportion of the reddit crowd that own a piece of AMC, which:
a) Will have fewer additional dollars to invest moving forward
b) And/or are in financial risk due expensive debt (thinking about credit cards).
This proportion could be forced to liquidate their existing positions therefore putting additional downward pressure to the company's stock. From a psychological point of view, other retail investors that do not realize that the stock can (under certain circumstances) go to zero, could see the stock price and think "oh, this is 30% lower than before, this is an opportunity". This could increase their appetite in the short term but eventually, my intuition tells me that liquidity draining around the world makes gravity quite strong to beat.
The LTM free cash flow is around -851 mUSD.
Assuming that the company would raise 0 USD from $APE, the company could still finance its operations for about a year with existing cash (~950 mUSD). In case it chose to issue more debt, that would extend its lifetime but it would put it in a certain "death" trajectory.
Assuming that the company can indeed raise equity via $APE an interesting thought experiment is to answer the following:
"How much is the yearly need for equity raised to extend its lifetime by 1, 2, 3, 4 (and so on..) years, assuming LTM cash burn?"
In theory if they could survive the next couple of years and if their product is still relevant to the masses (a big if - competition from alternative products is quite obvious), the could see light in the tunnel.
One should also obviously not ignore perverse upper management incentives. I can't, as I suppose a lot of others, help but thing about the massive wealth transfer that occurs when a CFO sells 91% (hope my numbers are right) of their shares just when the stock pops.
Just a few unstructured thoughts by someone new in the world of investing.
Thanks for the great content you put out there for us Bear!!
It is indeed a fountain of wealth but a limited one - it can remove the need for interest payments and risk of bankruptcy. The above example assumes that the share price holds steady despite dilution and the benefits of dilution stop once the debt has been paid off or the equity becomes more expensive than the debt.