Cineworld Shares Plunge More Than 50% After Report Of Looming Bankruptcy, AMC Falls

Topline

The world’s second largest movie theater chain and owner of Regal Cinemas, UK-based Cineworld Group, saw its stock plunge over 60% on Friday after The Wall Street Journal reported that the company will soon file for bankruptcy as the business struggles amid declining admissions.

A Regal Cinemas theater in New York which was temporarily closed during Covid lockdowns.

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Key Facts

British movie theater company Cineworld is preparing to file for bankruptcy as its business struggles to recover from the pandemic, The Wall Street Journal first reported on Friday.

Movie theater attendance has been slow to recover from pandemic lows, with Cineworld narrowly avoiding bankruptcy in 2020 after taking on debt to stay afloat– over 800 of its theaters were closed during Covid lockdowns.

Cineworld has since struggled to generate liquidity and repay that debt, recently warning that a lack of big-budget films in the fall is likely to further impact depressed attendance numbers.

Shares of Cineworld tanked on the bankruptcy report, falling over 50% to around $0.15 per share, down nearly 90% so far in 2022 and dropping significantly from a high of nearly $2 per share earlier this year.

The company is negotiating with lenders as it explores bankruptcy options, additionally engaging lawyers from Kirkland & Ellis LLP and consultants from AlixPartners to advise on the process, sources told the Journal.

Shares of other movie theater chains took a hit on the news as well: Cineworld’s largest competitor, AMC Entertainment, saw its stock tank over 7%, now down more than 30% so far in 2022.

Tangent:

Despite the grim news with Cineworld, AMC CEO Adam Aron reiterated that he was optimistic about his company’s prospects in a recent Twitter post. “Cineworld/Regal (our next largest competitor) issued a fairly bleak prognosis for its near-term performance and liquidity,” he said. “By contrast, at AMC, we are quite optimistic and confident in our future.”

What To Watch For:

Unlike AMC, which remains a favorite of meme stock traders on forums like Reddit’s WallStreetBets, Cineworld has struggled to raise capital. Thanks to its popularity, AMC has been able to tap into the retail investor crowd to generate liquidity, most recently in the form of a special dividend which grants shareholders AMC preferred equity units, or “APE” shares.

Crucial Quote:

“It pays to be a ‘meme’ stock if management takes advantage of the irrational investor behavior,” says Vital Knowledge founder Adam Crisafulli. The big difference between AMC and Cineworld “isn’t fundamentals (they are both showing the same movies), but instead liquidity,” he points out. “More than any other ‘meme’ company, AMC has embraced the nonsense, with management aggressively raising cash into the video game-like demand for its shares.”

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