Wall Street’s hottest new hedge fund is a Reddit community called r/wallstreetbets. This week, a mob of amateur traders coordinated on the blogging platform to buy up thousands of shares of the mall favorite game retailer GameStop’s extremely low-demand stock, driving the price to record highs, up over 1,700%. Now, the 4.6 million subscribers of r/wallstreetbets, which has ballooned as bored users stuck at home got into Robinhood and TDAmeritrade, are descending on ailing cinema behemoth AMC

On Wednesday, AMC’s shares hit a high of $20, up over 300% from their Tuesday closing price of $4.96. The spike comes despite a disastrous year for movie-going and movie-making that sent AMC to the top of the bankruptcy watch list that saw AMC’s stock dip below $2 in early January. Shares fell in after-hours trading, as of 8:30PM Wednesday, trading at $14.60 and began dropping as trading opened today. 

The power of Reddit and retail traders

AMC is America’s largest theatre chain with 8,000 locations across the U.S. Once dominant, thanks to a pre-existing $5 billion debt load, AMC was hit harder than peers by Covid-19, which shrunk the number of movies released this year, turbo-charged the trend towards streaming-only debuts and killed movie attendance for obvious reasons. At the end of last year, AMC said in an SEC filing that they were weeks away from bankruptcy, as they desperately hunted for funding. 

They finally got it on Monday, announcing they’d secured $917 million to help them stay solvent through 2021 between stock options and a loan from their European subsidiary Odeon. One day later, their stock began to rise and by Wednesday, Reddit traders had erased the theatre’s pandemic losses on the stock market. This morning, AMC reduced their debt by $600 million, issuing 44.4 million new shares, to capitalize on their unlikely momentum.

“This isn’t about money anymore”

r/wallstreetbets’ Wall Street invasion is a combination of a meme, get-rich-quick-scheme and class warfare campaign. On one level, r/wallstreetbets decided to blow up companies that they think would be funny to watch their stock soar, for instance an outdated mallcore video game company, one which Reddit’s gamer-centric user base likely has personal history with. This kind of nostalgic or humorous investment has already been dubbed a “meme stock,” or to some, “stonks.”

It might have started out as a prank, but the r/wallstreetbets army have come to see themselves as crusaders against Wall Street, “boomers,” elites and anyone else who can be blamed for American inequality. Their stock selections coincide with some of the most short-sold companies in recent years, a market practice in which traders profit by bet against already struggling companies, borrowing shares, selling them and buying them back even lower before returning them to their original holders. Even before the pandemic, AMC complained of being a victim of short-selling. AMC CEO Adam Aron told CNBC in 2019 that despite all-time high ticket sales numbers and solid earnings, that traders had been playing games with their stock. 

While Redditers have made tens of thousands, traders lost roughly $5 billion as GameStop stock climbed, forcing them to buy back the stocks they’d borrowed and then sold at sky-high prices, helping push stocks even higher. r/wallstreetbets is currently wall-to-wall with posts from newbie traders encouraging each other to “HOLD THE LINE” on $AMC and $GME and not sell (“That’s exactly what they want us to do”) and hyperbolically praising each other for their noble actions (“We are solving wealth inequality!” “Reddit is saving America,”). Other posts tell long, emotional stories of Reddit investments that have allowed users to pay off student loans or get surgeries they need, and recounting stories of growing up during the ‘08 recession. “I do know that this isn’t about money anymore,” one r/wallstreetbets member wrote. ‘It’s about proving a point.”

What does this mean for AMC? 

AMC’s short squeeze is a bit different from GameStop’s. For one thing, the movie theatre company’s increased share price has slightly more to do with the reality. There’s genuine reason to be more optimistic about AMC’s money-making potential, given AMC’s recent cash infusion and the newly minted Biden presidency, which promises to speed up vaccinations and get Americans back to the movies. 

But Reddit traders goal isn’t to “save” AMC, and they probably won’t be responsible for their survival. Despite r/wallstreetbets ‘ commitments to “holding the line,” stock bubbles burst. AMC’s shares are already down below $11 since trading opened this morning, after TDAmeritrade and Robinhood paused trading on both AMC and Gamestop’s stock, as well as several other "meme stocks" (much to outrage of of the Reddit community: “Ironic that an app called Robinhood is salty… that the poor are stealing from the rich”). Experts expect Gamestop stock to fall shortly. 

In the short-term, AMC’s solvency has much more to do with their-still rocky fundamentals than than a mad-dash stock spike. And long-term, their future ultimately rests on the timeline for when it’ll be safe to go to the movies again, as well as people's appetite for seeing movies IRL over streaming when that happens. Still, if the Reddit stock boom’s only ultimate impact on AMC is to make traders nervous about short-selling for a while, it could be an unlikely but solid step in the theatre’s road back to recovery.

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