Retail Revenge: AMC Meme Stock​


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By Robyn Ma​


The Story

When retail investors band together and swap gossip about stocks on social media, they have the power to drastically alter the share prices of so-called ‘meme stocks’ (Financial Times). AMC, the cinema chain, is one such example.

Its stock price surged by 400% this week, and over 3,000% this year (Aljazeera; Finimize). A market frenzy, inspired by the WallStreetBets Reddit page, has pushed the stock to a market capitalisation of $31.3 billion (CNBC). AMC then raised $230.5 million from a stock sale to Mudrick Capital (Bloomberg; CNBC; Financial Times).

For a company close to bankruptcy just several months ago, this is an incredible feat. In recognition, the securities filing from AMC includes a risk warning that current valuations reflect “trading dynamics unrelated to our financial performance or prospects” (CNBC).

AMC has been struggling to attract an audience as it contended against new streaming services such as Netflix. This was aggravated by COVID-19. With cinemas shut, AMC was $5 billion in debt and $450 million behind on lease payments (CNBC). Short sellers*, betting against the stock, rushed to get a piece of the action. However, with the help of retail investors, short sellers are “estimated to have lost $1.23billion” (CNBC).

AMC has a lot to thank its investors for. To show its gratitude, the company launched AMC Investor Connect, a newsletter with added benefits to shareholders. CEO Adam Aron intends for the platform to communicate with investors and provide special benefits (such as free popcorn!) (New York Times).

*Put simply, short sellers are investors who believe a stock will fall in value. To make a profit, they borrow shares, sell those shares, and hope to buy back those shares at a lower price.

What it Means for Businesses and Law Firms

Analysts have different perceptions of what is going on here. Dave Lauer, chief executive of data analytics firm Urvin.ai, describes this as “an example of capital markets functioning”, where companies raise money at a hefty valuation through a substantial support base (New York Times). In this case, retail investors are “sticking it to the hedge funds” and working to keep AMC afloat (CNBC). One Wall Street analyst sees this as an attempt to “democratise the stock market” (CNBC).

Others, viewing this as a short-term phenomenon, have described meme stock traders as “uneducated and emotional” (CNBC).

The “market volatility caused by apparent social media attempts to artificially inflate their stock price” (Compliance Week) has attracted scrutiny by the Securities and Exchange Commission (SEC). In its effort to monitor such “unusual activity”, the SEC has suspended six companies, and temporarily halted trading for several others (Compliance Week). It appears the SEC is attempting to adopt a more aggressive stance to meme stocks. Arguably, more stringent regulation is needed to prevent easy market manipulation. However, some might question whether the retail investors’ actions are any different from those of institutional investors, and whether the movement should even be considered market manipulation. Perhaps the democratisation of markets should be welcomed.

Just as AMC issued new shares in response to increased demand, other meme stock companies looking to do the same will require lawyers to advise on the issuance of new shares. Advice on market volatility as a result of these meme stocks will also be required from law firms. For example, Linklaters’ US Regulatory and Compliance Group recently published a report detailing such changes (Linklaters).