Free popcorn made the AMC stock soar

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on June 3rd, 2021.

By enticing with free popcorn, the cinema chain AMC’s share soared by 95 percent – in one day. The incident reveals a change of attitude towards speculators from internet forums. From skepticism to addressing them directly.

Fund manager Mudrick Capital made probably the worst stock market trade of the week.

On Tuesday, they began by buying newly issued shares for over 230 million dollars in the American cinema company AMC Entertainment. The price immediately jumped 23 percent. On the same day, Mudrick announced that they would instead sell their entire holding at a profit. They suddenly thought the stock was overvalued, according to a Bloomberg source.

But what at first looked like a quick and good deal took an unexpected turn instead. The next day, the AMC share soared by as much as 95 percent.

The price was driven by extreme activity from individual speculators, and during the day the stock was the most traded on all US stock exchanges. To put it in context, the trading volume of AMC was higher than Amazon ever had in a single day. And the valuation was one day higher than it is for half of the companies on the S&P 500. This for an extremely hard-pressed American cinema chain.

An optimistic interpretation of this sudden interest in cinemas could be that the sale of cinema tickets actually had its best weekend in the United States since the beginning of the pandemic.

But it is probably not ticket sales that are behind the sharp rise. Instead, the price increase is more similar to Gamestop, which was driven by a huge number of speculators from the internet forum Reddit in February. AMC was one of the stocks that joined the rally, but has been fairly stable until now when it reached a new all-time high.

However, there is a bio-related news that can be linked to both the price rush and the Gamestop phenomenon. AMC, which has about 30,000 Swedish investors via Avanza, launched a new platform for its shareholders on Wednesday which would – believe it or not – give free popcorn to its shareholders.

While Gamestop stood rather paralyzed and surprised when their stock suddenly soared, AMC seems rather to have decided in advance to use this to its advantage. The reasoning seems to be that if the share is still only traded in pure speculation – without connection to the underlying business – then why not appeal directly to the speculators? And to do it with the same kind of humor that drove the whole phenomenon from the beginning. There may be something reasonable in this complete unreasonableness.

If shares on the stock exchange are completely decoupled from the company’s operations, we leave the image of a trading venue and instead approach what can be compared to a casino. And as in all gaming-related businesses, it is important to get to know your customer. If traditional investors might be looking for generous stock dividend policies, speculators are looking for signals that will make more people hang on and continue to push up the price. And that’s where we seem to be now. In the situation where you buy a share, to get free popcorn.

The drama also continued on Thursday. At that time, the AMC share fell by more than 30 percent after the announcement that the company would take advantage of the current rise and issue new shares.

In the accompanying material, however, they themselves warned of the fluctuations in the price and wrote that “our current market price reflects a market and trading dynamic that is not related to either our underlying business, or macro and fundamentals, and we do not know how long this dynamic will hold up. ”

This column was first published in SvD Näringsliv, in Swedish, on June 3rd, 2021.

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