AMC, GameStop and Bed Bath & Beyond shares have fallen from the highs seen last year, but these companies have been taking steps to reinvest the profits raised during the meme stock frenzy.
Meme stocks have gained traction within the past two years as day traders, who frequent online forums such as Reddit’s Wall Street Bets, group together to promote targeted companies’ share prices.
Since the extended rally in the share prices of meme stocks, AMC Entertainment [AMC] has diversified by buying a stake in a gold miner, GameStop [GME] has made several strategic hires to its leadership team and Bed Bath & Beyond [BBBY] is planning to launch a slew of private home brands.
Despite meme stocks rallying in 2021, this trend has slowed down so far in 2022. The Roundhill MEME ETF [MEME], which was launched in December last year, has fallen 23.7% in the year-to-date to $10.72 on 22 March. Bed Bath & Beyond shares have led the decline, losing 61.4% during the period, while GameStop and AMC have lost 17% and 32.8%, respectively..
AMC diversifies through Hycroft Mining
Although a variety of businesses have been targeted, among one of the most attractive meme stocks to emerge from last year was the US-based cinema group AMC Entertainment. The stock entered 2021 trading at around $2, but a meteoric rise, fuelled by online chatrooms, saw the AMC share price finish the year close to 1,200% up.
The stock gain provided the business with a large cash injection of approximately $1.8bn. Since then, management has been keen to use the raised capital to revive the once near-bankrupt business.
As part of this, on 15 March, it was announced that AMC had bought a 22% stake in Hycroft Mining Holding and its 71,000-acre Nevada mine, equating to a $27.9m investment. In exchange, the firm will further receive 23.4 million warrants valued at around $1.07 per share.
The company has aimed to diversify following the large hit it took from the Covid-19 pandemic, exposing its fragile nature, and chairman and CEO Adam Aron stated how the similar position Hycroft finds itself in compared with AMC last year makes it a great investment for the business.
Comparing it to AMC, Aron said “it, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue. Its share price has been knocked low as a result. We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours.”
Although this move may come as a shock to some, investors seem to have likened to the move. As of Tuesday, the share price has risen around 10%, regaining some of the large losses the it has seen year-to-date.
“We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours” - AMC CEO Adam Aron on Hycroft Mining
A recurring theme among meme stocks
AMC is not alone when it comes to meme stocks that have been targeted by investors using these much-needed funds to revive their business. Following an immense rise in its share price across the course of 2021, GameStop completely eradicated its long-term debt last year (bar a $46.2m low-interest loan), placing the firm in a strong position going forward.
The firm has also seized this opportunity to shake up its leadership team. GameStop hired both Matt Furlong and Mike Recupero from Amazon as CEO and CFO, respectively. And while in its Q3 update chairman Ryan Cohen was quiet on what the firm had planned, these appointments sparked speculation about aspirations for a move from physical stores to a more technology-based business.
Its latest trading update, released yesterday, certainly seems to imply this is the case. Within the fourth-quarter overview, GameStop highlighted how it had established relationships with companies such as Lenovo, while it has also taken strides in the development of its NFT marketplace.
On top of this, GameStop stated how it had hired individuals with experience in areas such as blockchain gaming, albeit reinforcing a potential transition to a tech-based focus.
Cohen announces plans for Bed Bath & Beyond
Bed Bath & Beyond is a business that has in the past year followed a similar trajectory to that of AMC and GameStop. Last January saw the stock explode 93.9% over the course of the month as investors rushed to buy shares, pushing the price to a high of $52.89 on 27 January. While the share price has nearly halved since then, it has witnessed a recent jump as Cohen announced he now owns nearly 10% of Bed Bath & Beyond.
Towards the tail end of 2020, the firm announced a three-year strategy to invest between $1bn and $1.5bn through moves such as launching 10 private-label brands.
However, earlier this month, Cohen publicly criticised this strategy as “overly ambitious”, stating how “Bed Bath needs to narrow its focus to fortify operations and maintain the right inventory mix”.
The board said it would review the comments made by Cohen, showing how it may have to alter its long-term strategy if it wants to thrive in the years ahead.