AMC share price: can it hit the short sellers again?

The AMC (NYSE: AMC) share price currently stands at $33. This represents a 1,550% increase on its $2 low on 5 January. It’s also a near 50% fall from its high of $62 on 2 June. It’s safe to say that the share price is volatile. 

AMC benefitted from meme stock status earlier this year. Major hedge funds shorted AMC’s share price, making a bet that it would fall. Millions of young retail investors conspired on Reddit to buy shares, driving up the price.

When the AMC share price rocketed in May, many hedge funds had to settle their short positions for huge losses.

With 15.95% of AMC shares still shorted, could hedge funds be hit again?

Promising Q2 results

After being punished heavily by the pandemic, recent Q2 results look a lot more promising. 22m cinema visitors generated $445m in revenue, a figure almost 24 times higher than in Q2 2020. However, this was only 45% of the revenue seen in Q2 2019.

Losses were reduced to $344m down from $561m in the same quarter last year. 36% of revenue was from high margin food and drink sales, suggesting that customers are still happy to spend on extras.

There’s more good news. As AMC cinemas only reopened in June, this revenue only accounts for one month of the quarter. And with 51% of the US population fully vaccinated, it seems unlikely to me that future lockdowns will be necessary. 

Bitcoin for popcorn

US AMC cinemas will soon be accepting Bitcoin as payment in lieu of dollars. This strategy could appeal to new millennial investors, and it’s not alone in beginning to accept the cryptocurrency. Microsoft, AT & T, and Wikipedia are all getting involved. 

CEO Adam Aron also took advantage of the meme stock rally to sell new shares in the business, generating $2bn in cash. However, the number of shares has almost quintupled from 104m to 480m, making the chances of another Reddit-fuelled short squeeze far less likely. Such a large increase could also damage future earnings per share. And there’s no guarantee that more won’t be sold to create even more financial breathing room. 

Risky business for the AMC share price

AMC was only worth 5% of its $17bn market cap just six months ago. It has a net debt mountain of $3.7bn that’s impossible to ignore. FY revenue for 2019 was some $5.5bn, so sales would have to grow exponentially to get back to that level. 

The popularity of streaming also poses risks. The simultaneous release of blockbusters such as Black Widow in cinemas and on Disney+ could easily harm future profitability. However, The Suicide Squad’s low box office revenue being blamed on piracy, and a lawsuit from actress Scarlett Johansson could spell an end to the practice.

Already, some post-pandemic new releases are promised to be initially in cinemas only, including Free Guy and James Bond: No Time To Die. Moreover, AMC and Warner Bros recently agreed that from 2022, films would be shown exclusively in cinemas for 45 days.

It remains to be seen whether another short squeeze can occur, but I’m a long-term investor. I don’t see the current AMC share price as a reasonable entry point right now. I think there’s every chance it could fall further, at which point a small speculative position might be worth it for me.